T,  •• 


.'"  ■  '  •■-  i  '' 


COOPERATIVE 
COMPETITION 


25  Illuminating  Articles  on 

Trade  Associations 

with  an  introductory  article  by 

HERBERT  HOOVER 


This  discussion  by  business  men,  lawyers,  economists 
and  high  government  officials  of  the  proper  and  legiti- 
mate field  of  the  trade  association  is  an  example  of  the 
way  the  Neiv  York  Evemng  Pott  covers  the  field  of 
business.  Its  reports  of  events  and  movements  in  the 
fields  of  finance  and  commerce  make  it  an  almost  in- 
dispensable paper  for  the  man  who  wants  to  know  what 
other  men  are  saying  and  doing  concerning  the  problems 
that  confront  him.  For  additional  copies  address  the 
Evening  Pott,  20  Vesey  Street,  New  York. 


Price  25  cents 


COOPERATIVE 
COMPETITION 

A  discussion  of  the  acute  legal 
and  economic  perplexities 
confronting  trade  associations 


Reprinted  from  the  pages  of  the 

New  York  Evening  Post 

20  Vesey  Street 
New  York  City 


'S^  OPERATIVE    COMPETITION 


Trade  Associations  and  the  Future 

{This  editorial  appeared  in  the  New  York  Evening  Post  on  March  28,  1922.) 


;  ""Government  and  public  wero  quick  to  see  the 
•vils  potential  in  any  bureau  or  association  of  busi- 
ness men  formed  in  a  given  field  to  exchange  in- 
formation as  to  production,  stocks  on  hand,  stand- 
ards, costs,  and  prices.  They  took  early  steps  to 
legislate  against  the  danger  and  have  kept  a  sus- 
picious eye  upon  these  new  bodies.  Their  public 
benefits  were  left  to  be  developed  by  far-sighted 
business  men  without  public  appreciation.  We  may 
now  believe  that  this  is  changing.  It  is  realized  that 
■we  have  the  trade  associations  with  us  for  better  or 
■worse.  They  are  conservatively  estimated  to  exceed 
a  thousand  in  number,  and  the  demand  for  greater 
business  stability  and  more  intelligent  business  opera- 
tion which  they  represent  will  steadily  grow.  At 
the  outset  many  were  organized  in  a  purely  selfish 
•pirit  and  officered  by  narrow  and  selfish  men.  The 
abuses  stripped  by  the  Lockwood  committee  were 
rot  isolated  abuses.  But  the  best  part  of  the  busi- 
ness community  is  now  determined  to  make  such 
associations  conform  to  the  spirit  as  well  as  the  letter 
«f  the  law. 

We  have  too  long  thought  exclusively  of  what 
trade  associations  must  not  do;  the  series  of  articles 
which  the  Evening  Post  has  published  in  the  last 
fortnight  has  furnished  a  corrective  by  showing  how 
much  they  can  and  should  do.  Secretary  Hoover 
summarizes  a  large  part  of  their  proper  activity 
when  he  says  that  they  may  cut  off  enormous  wastes. 
They  may  distribute  information  which  prevents 
overproduction;  which  enables  producers  to  obtam 
their  raw  materials  in  the  best  markets;  which  im- 
proves manufacturing  methods  and  by  standardizing 
articles  of  commerce  cheapens  them.  They  may  pre- 
vent wasteful  overlapping  in  marketing,  reduce 
cancellations,  and  advertise  cooperatively.  They  may 
rreatly  raise  standards  of  business  morals,  and  the 
newer  type  of  trade  association  officer  is  keenly  in- 
terested in  doing  so.  They  may  enlarge  our  foreign 
trade  An  industry  that  is  blind  to  changing  market 
demands,  or  changing  conditions  of  commerce  or  to 
,„any  other  variable  factors  is  an  industry  that 
Trows  away  wealth;  an  industry  with  the  eyes  fur- 
Si^  by  an  information  bureau-for  that  isjha.  a 
trade  association  largely  is-conserves  it-  The  prob 
Wm  is^  save  all  the  best  elements  of  compet  tion 
^l^V^v^pg  ^  piuch  use  as  possible  of  cooperaUou. 


and  the  phrase  "cooperative  competition"  is  an  ex- 
pressive one. 

"  It'  is  only  after  we  have  understood  the  sound 
fun  ions  to  be  subserved  by  trade  associations  that 
we  can  guard  against  abuses  by  prohibitions  and 
restrictions.  Superficially,  it  may  ^'^^  .^^"''^iJ^ 
prohibit  any  activity  which  tends  tobmit  compete 
tion  But  there  is  sound  and  unsound,  healthy  and 
unhealthy  competition.  A  trade  association  which 
a«ts  to  prevent  such  ruinous  price  slashing  that 
weaker  firms  must  go  to  the  wall,  acts  not  to  re- 
strain competition  but  to  protect  .and  preserve  it. 
An  additional  distinction  was  drawn  by  Mr.  Edwin 
B  Parker  in  the  Evening  Post  last  week.  He  point^l 
out  that  business  men  who  are  not  joined  in  a  trade 
association  often  compete  in  ignorant  self-interest, 
while  those  in  the  right  kind  of  trade  assaciation 
compete  in  enlightened  self-interest.  That  is,  a 
manufacturer's  eagerness  to  beat  his  rival  by  lower 
prices  will  not  be  lessened;  but  he  will  not  be  mis- 
led into  flooding  a  market  already  full  when  he  has 
an  accurate  knowledge  of  demand  and  stocks  on 
hand.  By  all  means  let  us  make  rigid  laws  against 
any  practices  that  lessen  true  competition,  that  fix 
prices,  that  restrict  production  merely  to  raise  prices, 
and  that  crush  out  trade  rivals.  But  we  must  em- 
ploy the  rule  of   reason. 

Because  the  application  of  this  rule  of  reason  in- 
volves a  thorough  appreciation  of  the  economic  com- 
plexities of  the  problem,  the  courts  are  not  the  agen- 
cies best  fitted  to  administer  it.  The  decisions  of 
the  Federal  Supreme  Court  in  the  cases  of  trade 
associations  prosecuted  for  violation  of  the  anti-trust 
laws  have  not  furni^ed  a  clear  guide  to  other  asso- 
ciations. Each  case  has  been  decided  upon  its  own 
merits.  The  judicial  opinions,  far  from  marking  out 
fixed  principles,  have  been  conflicting  and  confused 
in  principle.  State  and  national  commissions  seem 
the  proper  agencies  to  be  granted  the  oversight  of 
trade  commission  activities.  They  can  act  more 
quickly,  expertly,  and  above  all  more  consistently 
than  the  courts.  The  natural  agency  at  Washington 
is  the  Federal  Trade  Commission,  but  its  complete 
reorganization  must  precede  the  assumption  of  any 
such  responsibility,  _^  ^ 


OOPTBIQHT,  1822,  N.T.KVEMNQ  POST,  INC 


CO-OPERATIVE   COMPETITION 


March  i8,  1922 

TRADE    ASSOCIATIONS    SHOULD 
STABILIZE  BUSINESS 

Associations'  Place  in  Law  and  Functions  Should  Be  Determined — 
"Profound  Necessity  for  Greater  Stability  in  Our  Produc- 
tion and  Distribution" 


By  HERBERT  HOOVER 

Secretary  of  Commerce  of  the  United  States 


''  I  am  very  glad  indeed  to  see  the  Eve- 
ning  Post  undertake  a  thorough  discus- 
sion of  the  organization,  functions,  and 
place  in  law  of  our  various  voluntary 
economic  organizations,  such  as  cham- 
bers of  commerce  and  associations  of 
manufacturers,  distributers,  bankers, 
farmers  and  workers. 

The  problem  involved  is  one  that  goes 
to  the  very  foundation  of  our  whole  social 
and  economic  system.  As  a  people  we 
are  saying  at  the  same  time  that  we  must 
maintain  competition  in  order  that  we 
should  maintain  individual  initiative; 
that  we  will  not  have  profiteering;  that 
we  will  keep  free  the  law  of  supply  and 
demand;  that  we  should  have  such  a 
basis  of  business  stability  as  prevents 
wholesale  bankruptcy  with  its  attendant 
depressions  and  unemployment.  These 
principles  do  not  altogether  conflict,  but 
they  will  require  careful  harnessing  if 
they  are  to  be  driven  in  team. 

There  is  a  profound  necessity  for 
greater  stability  in  our  production  and 
distribution.  One  needs  to  search  no 
further  than  our  intermittent  industries, 
our  acute  booms  and  depressions,  for 
proof  of  that.  Nor  are  boom.s  and  de- 
pressions theoretical  things.    They  are 


vast  destructions  of  enterprise,  of  capi- 
tal and  of  employment. 

The  desire  for  greater  stability  is 
strong  and  persistent.  It  grows  in  force 
after  periods  of  economic  difficulty.  Fol- 
lowing the  great  depression  of  the  early 
nineties,  we  were  afflicted  with  a  flood 
of  combinations  and  consolidations  by 
the  combining  of  capital.  This  was  the 
natural  result  of  the  previous  period  of 
widespread  bankruptcy  and  therefore  a 
groping  for  something  that  would  serv« 
as  a  basis  of  stability. 

The  law  very  promptly  stepped  in  to 
prevent  the  domination  threatened  by 
the  combination  of  ownership  with  its 
elimination  of  competition  and  its 
strangling  of  equality  of  opportunity. 

The  more  recent  form  of  this  groping 
for  stability  is  witnessed  in  the  tremen- 
dous growth  of  economic  associations  of 
all  kinds,  especially  during  the  last  dec- 
ade. This  is  not  alone  a  question  of 
manufacturing  and  transportation  in- 
dustries. It  has  been  equally  prevalent 
among  farmers,  among  workers,  and 
among  distributers,  until  there  are  to- 
day of  one  kind  or  another  probably 
25,000  of  these  voluntary  associations 
having  economic  objectives.  The  farmer 
and    labor    associations    having    been 


CO-OPERATIVE    COMPETITION 


practically  exempted  from  the  restric- 
tions of  the  trade  restraint  laws,  a  vast 
majority  of  others  are  concerned  in  mat- 
ters that  do  not  result  in  trade  restraiht 
and  are  definite  contributions  to  public 
welfare. 

While  some  minority  of  trade  asso- 
ciatiohS  do  things  that  in  effect  restrain 
.competition,  many  of  the  activities  of 
even  this  residue  do  not  have  this  effect. 
Certain ,  traders,  particularly  in  the 
,  building  material  trades,  have  used  the 
cloak  of  such  organizations  for  direct 
feqnspiracy  to  restrain  competition,  and 
in  fact  some  ingenious  persons  have 
worked  out  methods  by  which  practical 
combinations  for  price  and  market  con- 
trol were  exerted.  Their  conspiracies 
were  no  more  an  essential  part  of  asso- 
ciation work  than  the  possessing  of  a 
brickbat  is  essentially  murder.  The 
functions  of  genuine  chambers  of  com- 
merce and  trade  associations  have  no  re- 
lation to  the  things  prohibited  by  law 
and  do  make  for  public  welfare.  The 
functions  that  border  upon  trade  re- 


straint, whether  illegal  or  not,  should  be 
eliminated. 

It  is  a  foolish  approach,  however, 
that  would  destroy  the  good  in  order  to 
eliminate  the  evil. 

The  studies  carried  out  in  the  De- 
partment of  Commerce  during  the  last 
year  convince  me  that  there  lies  in  these 
associations  a  road  for  the  elimination 
of  vast  waste  in  our  whole  industrial 
system  through  the  development  of  co- 
operation without  destroying  competi- 
tion. The  legitimately  formed  associa- 
tions have  contributed  greatly  to  the  im- 
provement of  business  morals  and 
practices,  have  cheapened  our  produc- 
tion and  distribution  processes,  have  im- 
proved working  conditions,  have,  by  the 
statistics  they  publish  of  production  and 
distribution,  enabled  our  whole  com- 
mercial public  to  form  safer  judgments 
as  to  their  future  policies.  They  have 
contributed  to  the  advancement  of  our 
foreign  commerce,  and  generally  they 
have  interested  themselves  in  our  eco- 
nomic welfare.  These  services  should 
be  preserved  and  even  better  organized. 


CO-OPERATIVE    COMPETITION 


March  i8,  1922 

TRADE  ASSOCIATIONS  VITAL  TO 

BUSINESS 


Their  Activities  Required  to  Restore  Business  Stability  —  Abuses  of 
"Open  Price"  Methods  Are  Cohfined  to  a  Small  Number 


By  WILLIAM  0.  SCROGGS 


Secretary  Hoover,  in  his  article  in 
to-day's  Evening  Post,  puts  his  finger 
on  a  vital  spot  in  the  business  situa- 
tion when  he  shows  that  the  tremen- 
dous growth  of  trade  associations  in 
recent  times  is  due  to  a  "groping  for 
stability."  Critics  of  the  existing  in- 
dustrial order  have  laid  much  em- 
phasis upon  the  instability  that  comes 
from  the  lack  of  coordination  between 
production  and  consumption,  with  the 
consequent  alternations  of  periods  of 
boom  and  depression.  The  need  of 
effecting  such  coordination  has  beer, 
one  of  the  compelling  forces  that 
have  driven  men  who  for  most 
of  their  lives  have  been  keen  com- 
petitors Into  organizations  to  promote 
their  mutual  welfare. 

The  pa.st  eighteen  months  have  been 
an  especially  trying  period  for  the 
business  men  of  this  country.  Prices 
have  not  only  declined  in  record-break- 
ing fashion  but  they  have  fallen  so 
unequally  as  to  create  serious  econom- 
ic maladjustments.  The  process  of  re- 
adjustment has  been  painful,  but  it 
would  have  been  even  more  so  if  pro- 
ducei's  and  distributers  had  persisted 
in  "going  it  alone."  During  the  last 
decade,  however,  and  especially  under 
the  stress  of  the  war  and  its  after- 
math, Amei-ican  business  men  hav;? 
been  slowly  divesting  themselves  of 
their  once  rampant  individualism  t.nd 
have  come  in  increasing  degree  to  per- 
ceive the  advantages  inherent  in  col- 
lective action. 

Movement  in  All  Groups 

This  associative  movement,  as  Sec- 
retary Hoover  points  out,  is  not  con- 
fined to  any  particular  group  or  class, 
and  the  organizations  of  manufactur- 
ers have  their  counterpart  among 
farmers,  laborers,  lawyers,  bankere, 
and  even  among  such  a  supposedly 
cloistered  group  as  college  professors. 
Trade  associations,  or  organizations  of 
men  engaged  in  the  same  line  of  busi- 
ness, had  their  beginning  more  than  a 
generation  ago,  but  their  growth  has 
been  most  pronounced  during  the  last 
few  years. 

They  proved  their  usefulness  during 
the  war  by  bringing  entire  groups  in  a 
given  line  of  business  into  harmonious 
cooperation  with  the  Government 
through  the  instrumentality  of  the 
various  war  boards.  With  their  as- 
sistance the  Government  was  enabled 
to  procure  its  necessary  quota  of  war 


materials  with  a  minimum  of  effort 
and  delay.  With  their  cooperation  the 
production  of  non-essential  commodi- 
ties was  curtailed,  supplies  of  raw  ma- 
terials of  which  there  was  "not  enough 
to  go  around"  were  allocated  so  as  to 
give  every  producer  an  equal  chance, 
and  standardized  methods  and  pat- 
terns were  adopted  so  as  to  obtain  the 
most  economical  use  of  labor  and 
goods.  Where  trade  associations  did 
not  already  exist  in  the  industries 
concerned  with  the  war.  the  Govern- 
ment encouraged  their  formation,  and 
collectively  they  played  an  enormously 
important  part  in  mobilizing  the  na- 
tion's industries. 

Over  1 ,000  Associations 

To-day  there  are  over  a  thousand 
trade  associations  of  more  than  local 
importance,  but  there  are  still  maiiy 
intelligent  persons  who  have  not  yet 
learned  that  a  trade  association  is  not 
the  same  thing  as  a  trade  union.  The 
tendency  for  producers  and  distrib- 
uters to  resort  to  group  cooperation 
has  developed  so  far  that  there  is  now 
even  an  association  of  associations,  or, 
more  accurately,  an  association  whose 
membership  is  made  up  of  the  execu- 
tive officers  of  individual  trade  asso- 
ciations. 

As  one  of  the  postulates  to  be  em- 
phasized at  the  beginning  of  this  se- 
ries of  articles,  it  may  be  stated  that 
the  trade  association  is  a  necessity  in 
modern  industry.  The  prevention  of 
business  anarchy  lies  in  some  such  co- 
operation. This  may  be  obtained 
through  the  direct  merger  or  amal- 
gamation of  different  units,  or  by  em- 
ploying the  principle  of  federation 
Past  experience  shows  that  from  the 
viewpoint  of  public  welfare,  as  well 
as  from  that  of  the  business  itself, 
the  federation  idea  is  preferable.  Fed- 
eration allows  that  fuller  play  for  in- 
dividual initiative  which  consolidation 
is  likely  to  render  imposeible.  It  tends 
also  to  prevent  the  topheaviness,  the 
diffusion  of  responsibility,  and  the  lack 
of  directness  o£.motivation  which  have 
sometimes  undermined  the  efficiency 
of  large-scale  business  organizations. 

Competition  Can  Be  Kept 

Under   the   federation    principle,    as 
found    in    the    modern    trade   associa 
tions,  competition  may  still  be  retained 
as  a  vital  factor  in  business,  but  in- 
stead  of   being   of   the  old-fashioned, 


blindly  bludgeoning  sort,  it  is  rendsrc^d 
intelligent,  cooperative,  and  construc- 
tive. Under  properly  conducted  trade 
associations  there  will  still  be  com- 
petition in  the  matter  of  prices,  as 
well  as  in  the  matter  of  quality  of 
goods,  but  the  ruinous  effects  of  indis- 
criminate price-slashing  and  selling 
below  cost  will  be  avoided.  Reasonable 
prices  to  the  consumer  and  reasonable 
profits  to  the  producer,  without  which 
there  can  be  no  such  thing  as  really 
sound  business,  will  become  the  guid- 
ing policy. 

The  seller,  however,  can  establish 
reasonable  prices  only  when  he  hai* 
accurate  knowledge  of  costs  and  of 
njarketing  conditions.  Possessing  such 
knowledge,  he  can  readily  determine 
the  price  that  will  yield  him  a  fair  'ij.^ 
profit.  Obviously,  when  all  concerns 
in  a  given  line  of  business  have  such 
information  at  hand  as  a  guide  for 
making  their  prices,  a  long  stride 
has  been  taken  in  that  particular 
business  in  the  direction  of  stabiliza- 
tion. When  other  industries  upon 
which  this  one  is  dependent — as,  for 
example,  those  producing  raw  ma- 
terials or  machinery — are  followins 
the  same  cooperative  policy,  it  is  evi- 
dent that  the  foundations  for  stable 
business  have  been  still  further 
strengthened. 

While  the  dissemination  among  the 
members  of  a  trade  of  mformatlon 
with  regard  to  production  costs  and 
general  market  conditions  is  one  of 
the  most  important  functions  of  tlie 
trade  association,  it  is  by  no  means 
the  sole  function.  The  distribution 
of  data  concerning  'he  prices  and  best 
sources  of  raw  materials,  methods  of 
eliininating  waste  and  of  utilizing  by- 
products, the  standardization  of  goods 
and  of  manufacturing  processes,  the 
handling  of  traffic  problems  of  com- 
mon concern,  the  maintenance  of  a 
credit  information  bureau,  the  formu- 
lation of  a  uniform  policy  with  re- 
gard to  the  vexatious  problem  of  can- 
cellations, cooperative  advertising, 
safeguarding  the  interests  of  the 
business  when  subjected  to  attack  by 
legislative  or  other  Government  bod- 
ies, the  suppression  of  untruthful  ad- 
vertising, «nd  the  establishing  of  uni- 
form accounting  methods  are  some  of 
the  other  functions  that  come  within 
the  field  of  trade  association  activities. 

"Open  Price"  Operation 

From  this  list  one  Important  form 
of  activity  has  been  purposely  omitted 


t,i. . 


e 


cooperative:  competition 


because  of  its  questionable  leeal  status. 
This  is  the  so-called  "open  price"  op- 
eration, which,  though  not  resorted  to 
by  all  trade  associations,  has  received 
more  attention  than  any  other  on  ac- 
count of  the  abuses  which  have  been 
discovered  in  connection  with  it  in 
the  case  of  a  few  trades.  The  -open 
price"  policy  has  its  vehenaent  critics 
and  also  its  stout  defenders.  The  De- 
partment of  Justice  and  the  Federal 
Trade  Commission  have  set  their  faces 
ttrmly  against  it.  The  view  of  the 
latter  agency  was  set  forth  by  Presi- 
dent Harding  in  his  address  to  Con- 
gress on  April  12,  1921,  in  which,  after 
referring  to  the  failure  of  living  costs 
to  decline  proportionately  with  prices 
In  primary  markets,  he  said: 

"I  have  asked  the  Federal  Trade 
Commission  for  a  report  of  its  obser- 
vations, and  it  attributes  in  the  main 
the  failure  to  adjust  consumers'  costs 
to  basic  production  costs  to  the  ex- 
cnanse  cr  i.-ilt^i  mation  by  'open  price 
associations,'  which  operate  evidently 
within  the  law  to  the  very  great  ad- 
vantage of  their  members  and  equal 
disadvantage  to  the  consuming  public." 

This  statement  served  for  the  first 
time  to  direct  the  attention  of  the 
whole  country  to  the  subject  of  the 
"open  price"  association.  About  th>i 
same  time  came  the  exposure  of  cer- 
tain objectionable  practices  due  to  the 
"open  price"  tactics  of  the  local  build- 
ing trades  In  New  York  City.  Then, 
towards  the  end  of  the  year,  came  the 
decision  of  the  United  States  Supreme 
Court  in  the  Hardwood  Lumber  Manu- 
facturers' case  (American  Column  and 
Liumber  Company  et  al.  vs.  the  United 
States),  which  has  served  further  to 
discredit  the  "open  price"  association 
In  the  eyes  of  the  American  public. 

When  "Open  Prices"  Overstep 
It  is  well  to  empnasize  the  fact, 
however,  that  not  all  trade  associa- 
tions are  of  the  "open  price"  variety. 
It  is  only  when  an  association  ex- 
changes among  it.=!  members  daily 
price  lists,  sales  figures,  and  other 
data  designed  to  enlighten  them  as  to 
the  general  trend  of  prices  that  it  Is  to 
b«  placed  In  the  category  of  those 
that  are  likely  somo  day  to  Pnd  the 
iLttomey  General  of  the  United  States 


and  his  corps  of  investigators  and 
prosecutors  after  them  in  fu"l  hue 
and  cry. 

Even  when  an  association  has  been 
employing  the  "open  price"  plan  it 
does  not  follow  that  it  has  actually 
passed  beyond  the  border  line  of 
things  that  are  permissible.  Opin- 
ions differ  as  to  th-i  full  implication 
of  the  decision  In  the  Hardwood  Man- 
ufacturers' case.  According  to  one 
view,  the  judgment  of  the  Court  was 
not  directed  against  "open  price" 
methods  as  such,  but  against  the  ob- 
jects for  which  these  methods  were 
employed.  Others  see  in  the  decision 
the  placing  of  all  "open  price"  prac- 
tices under  the  ban  of  the  anti-trust 
laws.  The  uncertainty  due  lo  thi;> 
divergence  of  opinion  among  even  the 
best-trained  legal  minds  is  proving 
most  unfortunate  for  business. 

In  defending  the  "open  price"  prac- 
tices the  Hardwood  Manufacturers' 
Association  took  the  position  that  the 
data  which  it  distributed  among  its 
members  were  of  the  same  nature  as 
that  contained  in  newspapers  with  re- 
gard to  the  commodities  and  secuiities 
bought  and  sold  on  the  organized  ex- 
changes. The  Court,  however,  point- 
ed out  that  there  was  a  "distinguish- 
ing and  suflftcicnt  difference,"  in  that 
the  reports  In  the  public  press  zo  to 
both  buyers  and  seller.^,  whereas  those 
of  the  association  went  to  the  sellers 
only.  Moreover,  in  the  case  of  the 
association,  its  price  statistics  passed 
to  the  members  through  the  hands  of 
skilled  interpreters  who.se  duty  it  was 
to  indicate  "action  likely  to  prove 
profitable  in  proportion  as  it  is  united- 
ly pursued."  In  short,  the  Court  could 
see  in  the  "open  price"  plan  as  oper- 
ated by  this  association  an  avowed 
purpose  to  maintain  a  sellers'  marke' 
under  any  and  "all  conditions.  The 
practices,  therefore,  were  denounced 
as  an  old  evil  In  a  new  dress  and  un- 
der a  new  name. 

New  Definite  Rules 

wag  handed 
have  become 
n  conducting 
result  in  the 
opinions  con- 
price   associa- 


Since  this  decision 
down  trade  association 
extremely  cautious  1 
transactions  that  may 
Interchange  of  facts  or 
cernlng   prices.      Open 


tions  are  desirous  of  seeing,  definite 
rules  laid  down  for  their  guidance, 
setting  forth  explicitly  what  they  may 
do  and  what  they  may  not  do.  There 
is  nothing  new  in  their  complaint 
about  the  uncertainties  of  the  law. 
The  same  thing  was  heard  after  the 
dissolution  of  the  tobacco  and  oil  com- 
binations in  1911.  It  is  useless,  how- 
ever, to  look  to  the  courts  for  relief 
In  this  direction.  The  formulation  of 
definite  rules  of  action  tor  the  trade 
associations  is  the  function  of  the  ad- 
minietratlve  rather  than  of  the  judicial 
branch  of  the  Government.  The  courts 
can  only  pass  upon  each  specific  case 
that  is  brought  within  their  cogni- 
zance and  decide  whether  the  facts 
as  set  forth  are  or  are  not  In  contra- 
1  ention  of  the  statutes. 

Some  of  the  chafing  at  the  recent 
decision  is  not  due  so  much  to  the 
uncertainty  of  the  law  as  construed 
b:  the  courts  as  to  its  absolute  cer- 
tainty. The  courts  have  made  it  clear 
that  practices  designed  to  restrain  le- 
gitimate competition  and  essentially  to 
fix  prices,  divide  territory,  or  restrict 
output  are  unlawful.  There  is  no  un- 
certainty about  that,  and  whether 
there  are  many  cases  in  which  busi- 
ness organizations  are  unwittingly  re- 
sorting to  such  expedients  is  doubtful. 
The  uncertainty  consists  mainly  in 
their  inability  to  discover  in  advance 
how  far  they  may  go  in  such  directions 
v.ith  impunity. 

The  safe  rule  for  trade  associations 
to  follow  is  to  steer  clear  of  any  ac- 
tivities which  tend  to  hamper  the 
free  operation  of  the  laws  of  supoly 
and  demand.  The  great  majority  of 
these  organizations  pursue  such  a 
course,  and  of  the  few  who  trespass 
some  are  punished.  The  oft-repeated 
assertion  that  the  attitude  of  tho 
Oovcmment  towards  the  "open  price" 
s>stem  threatens  the  existence  of 
trade  associations  has  little  basis  In 
fact.  As  has  already  been  indicated, 
there  are  enough  useful  and  socially 
desirable  things  that  an  association 
may  legitimately  do  to  keep  it  fully 
occupied  without  its  straying  off  into 
the  twilight  zone  of  "open  price"  tac- 
tics. And  there  Is  every  reason  to 
believe  that  In  the  pursuit  of  these 
legitimate  functions  the  trade  associa- 
tions will  receive  nothing  but  en- 
couragement and  cot'peration  from  the 
Governmeat. 


CO-OPERATIVE   CJOMPETITION 


March  20,  1922 


SAYS  LAW  CURBS  COMPETITION 
IN  ORDER  TO  MAKE  IT  FREE 


Trade  Associations  Can  Foster  Rivalry  —  Attorney  Advocates  Free- 
dom to  Serve  Enlightened  Self-interest — Bad  Business  Policy 
to  Crush  Competition — Value  of  Exchanging  Information 


By  EDWIN  B.  PARKER 

C4eneral  (Jouneel  of  the  Texas  Company,  Chairman  of  Priorities  Division,  War  Industries 
Board,  and  in  closest  contact  with  Trade  Associations  during  the  war. 


No  honest  man  who  has  given  the 
problem  any  mature  consideration  will 
challenge  the  statement  that  trade 
associations  legitimately  conducted  re- 
sult in  benefits  to  their  members  and 
to  the  genei^al  public.  That  organiza- 
tions in  the  form  ol  trade  associations 
have  been  used  as  a  cloak  under  which 
unlawful  combinations  have  sometimes 
sought  to  conceal  their  real  purposes 
and  evade  the  law,  there  can  be  no 
doubt. 

Under  the  existing  law  there  can  be 
no  combination,  agreement,  or  under- 
standing, express  or  implied,  direct  or 
Indirect,  tending  to  create  a  monopoly 
or  unreasonable  restraint  of  trade. 
Combinations  in  restraint  of  trade, 
masquerading  in  the  form  of  trade  as- 
sociations, may  fool  themselves  into 
believing  that  they  are  fooling  the  rest 
of  the  world,  but  there  is  in  store  for 
them  a  rude  awakening. 

The  life  of  the  law  is  reason,  and  the 
application  of  any  rule  of  law  can  be 
safely  made  only  when  the  reason  of 
the  rule  is  clearly  understood.  Con- 
stantly changli^  commercial,  indus- 
trial, and  ecoMVlt  conditions  require 
— not  a  deparloi*  from  fundamental 
principles — but  a  atuohlng  out  of  the 
reasons  underlying  the  rules  and  a 
broad  intelligent  application  of  them 
to  such  changed  conditions. 

In  order  to  clearly  understand  the 
law  relating  to  combinations  in  trade, 
it  is  necessary  to  have  In  mind  the 
gist  of  the  economic  doctrines  which 
have  accompanied  and  controlled  the 
development  of  that  law.  Throughout 
the  centuries  competition  has  been  ac- 
claimed the  "life  of  trade,"  and  this  is 
tl.-e  accepted  foundation  upon  which 
rests  this  branch  of  economics.  The 
principle  of  competition  as  expounded 
by  the  classical  economists,  Adam 
Smith,  Rlcardo,  and  others,  and  as  re- 
Pned  by  John  Stuart  Mil),  furnishes 
th©  foundation  for  our  anti-trust  leg- 
islation. The  "law  of  supply  and  de- 
mand" is,  according  to  their  teachings, 
the  most  fundamental  economic  law, 
operating  automatically  by  the  inflexi- 
ble law  of  nature  For  its  operation 
and  for  all  purposes  they  assume  two 
axioms: 

(1)  That  man  always  acts  from  the 
motive  of  "self-interest,"  and 

(3)  That  the  principle  of  "compe- 
tition" is  always  present. 

This    doctrine    propounded    in     the 


latter  part  of  the  eighteenth  century 
took  a  firm  hold  ou  Anglo-American 
thought,  and  remained  for  years  the 
cherished  guide  of  business  intelli- 
gence. In  fad,  with  certain  refine- 
ments, It  is  stil!  our  cherished  guide. 
These  refSnementa  were  contributed 
principally  by  one  of  tlie  most  power- 
ful minds  of  our  race — John  Stuart 
Mill,  Ho  found  the  older  doctrine  true 
in  its  outline,  but  he  gave  if  a  more 
workable  meaning  by  refining  certain 
of  its  definitions  and  subtracting  a 
little  from  the  assumption  that  it 
would  always  work  automatically.  He 
taught  that  while  the  "law  of  supply 
and  demand"  was  sound  and  efficaci- 
ous, two  of  its  axiomo  needed  more 
careful   definition: 

(1)  Competition  would  not  do  the 
work  unless  it  was  free,  unrestrained 
and  unhindered  competition;    and 

(2)  Self-interest  would  not  be  a 
sure,  prompt,  and  effective  motive  for 
the  competitors  unless  it  was  en- 
lightened self-interest. 

It  was  with  these  accepted  axioms 
in  mind  that,  in  the  yeans  just  pre- 
ceding the  enactment  of  the  Sherman 
law  in  1890,  the  people  came  to  study 
the  cure  for  the  vicious  practices  it- 
tendant  upon  the  numerous  examples 
in  our  country  of  great  mas.ses  of 
capital  so  controlling  high  percent- 
ages of  individual  commodities  that 
prices  could  be  held  indefinitely  above 
the  cost  of  production,  plus  a  reason- 
able profit,  and  the  natural  law  of 
"supply  and  demand"  be  set  at 
naught.  Everybody  was  willing  to 
assume  that  an  "enlightened  self-in- 
terest" was  the  dominant  motive 
among  business  men.  The  difficulty 
seemed  to  lie  in  the  principle  of  com- 
petition. Competition  was  not  "free"; 
it  was  being  restrained,  and  for  this 
reason  the  law  of  supply  nnd  demand 
could  not  operate  expeditiously  to 
produce  the  desired  balance  at  which 
commodities  would  sell  for  cost,  plus 
a  reasonable  profit,  legislation  de- 
signed to  preserve  "free  competition" 
was  therefore  believed  to  be  the  cure, 
and  the  Federal  Congre.ss  began  with 
a  very  simple  statute,  known  as  the 
"Sherman  act,"  practically  declara- 
tory of  the  common  law,  with  appro- 
priate penalties.  The  effect  of  this 
act  was  to  destroy  certain  forms 
without  entirely  reaching  the  sub- 
stance of  the  evil. 


Merciless  and  unrestricted  competi- 
tion drove  many  compe'Uors,  i-espond- 
ing  to  the  law  of  self-preservation, 
to  the  "pool"  and  the  "trust,"  through 
which  industrial  control  was  in  a  large 
measure  obtained.  Less  powerful  co.-n- 
petitors  were  crushed  and  driven  from 
the  field  by  various  disgraceful  prac- 
tices, which  have  come  to  be  known 
as  "unfair  competition,"  to  whicn 
class  belong  misbranding,  false  adver- 
tisements, blacklists,  boycotting,  and 
the  more  modern  devices,  such  as  the 
"fighting  brand."'  the  bogus  indepen- 
dent concern,  the  rebate  and  the  pref- 
erential contract. 

To  cure  these  abuses.  Congress  in 
1914  passed  the  Federal  Trade  Com- 
mission Act,  declaring  unlawful  "»\\ 
unfair  methods  of  competition,"  with- 
out defining  them;  and  also  the  Clav- 
ton  act  prohibiting  price  iiscrimina- 
tlon,  certain  kinds  of  exclusive  con- 
tracts. Intercorporate  stockholdinj* 
and  interlocking  directorates,  where 
the  effect  might  be  substtntially  to 
les.sen  competition  or  create  a  mono^ 
oly.  This  legislation  drew  its  sop* 
port  from  at  least  two  distinct  sources 
The  first  was  the  growing  belief  that 
the  Sherman  act  was  insufficient  tfl 
curb  those  bent  upon  r.ionopoly  an4 
restraint  of  trade  so  long  as  certain 
methods  of  competition  were  available 
to  them.  The  second  was  the  eleva- 
tion of  business  ethics  and  moraliiy 
to  the  point  where  business  men  be- 
gan to  look  with  distaste  upon  tho 
mean,  petty,  and  dishone&t  methods 
of  unfair  competition  that  were  com- 
monly employed  and  that  had  dis- 
graced commerce  and  industry  for 
centuries. 

It  if?  interesting  to  note  the  some- 
what curious  fact  that  the  Govern- 
ment, In  seeking  more  effectually  to 
strike  down  monopolies,  used  as  a 
weapon  the  enforced  restriction  of  the 
free  power  of  merciless  competition. 
The  law  has  curbed  competition  In 
order  to  make  it  free.  We  are  now 
coming  to  see  that  the  ultimate  solu- 
tion lies  not  alone  in  keeping  compe- 
tition free,  but  also  in  adding  to  the 
enlightenment  of  self-interest. 

In  testing  the  legality  of  a  trade  ae- 
sotiation  ami  in  determining  what  are 
its  legitimate  functions,  the  scope  of 
its  activities  must  he  examined  in  the 
light  of  the  first  principles  which  have 


10 


CO-OPERATIVE    COMPETITION 


been  noticed  and  the  economic  rea- 
sons prompting  the  enactment  of  the 
statutes  mentioned.  The  question  must 
be  plainly  asked  and  frankly  answered: 
Do  such  activities  restrain  or  hamper 
free  and  fair  competition  among  those 
abUag  from  motives  of  enlightened 
self-interest?  The  assembling  and  dls- 
senilnating  of  information  of  common 
interest  to  all  members  of  an  industry 
not  only  tends  to  make  competition 
more  free  because  based  on  more  in- 
,  telligence,  but  it  furnishes  informa- 
"  tion  to  the  competing  agents  fitting 
them  to  act  quickly  and  promptly  from 
the  motive  of  enlightened  self-interest, 
Ita  distinguished  from  ignorant  self- 
t)tterest.  Without  accurate  knowledge 
•r  the  demand  for  his  products  and  the 
stocks  on  hand  to  meet  such  demand, 
enlightened  self-interest  could  not  so 
•ffectively  prompt  increasing  the  out- 
put to  meet  a  shortage  in  order  to 
reap  the  benefits  of  high  prices;  which 
conduct  in  turn  carries  with  it  its  own 
automatic  cure  in  the  form  of  in- 
creased production  and  lowered  prices. 
Neither  the  common  law  nor  the 
statutes.  State  or  Federal,  either  in 
letter  or  spirit,  seek  to  prevent  any 
individual,  firm  or  corporation  from 
acquiring  all  available  knowledge  of 
facts,  in  order  to  act  intelligently  in 
the  conduct  of  their  business.  No 
principle  of  law  and  no  final  decision 
condemns  the  formation  and  mainten- 
ance of  an  association  of  independent 
business  competitors,  each  of  whom  re- 
mains free  In  the  conduct  of  his  busi- 
ness, having  for  its  purpose  th^  as- 
sembling, classifying,  and  disseminat- 
ing of  Ipformation  of  common  interest. 
That  the  tendency  of  such  activities 
is  to  promote  rather  than  restrain 
trade  is,  very  properly,  recognized  by 
our  Federal  Government,  in  suggesting 
the  formation  of  trade  associations  and 
Inviting  their  cooperation  with  the 
Government  in  the  compilation  and 
dissemination  of  information  of  this 
character. 

"  The  alternative  is  wholesale  con- 
solidations. If  competing  units  in 
Industry  are  denied  the  right  to  re- 
main competing  units,  and  at  the 
same  time  to  cooperate  in  the  ascer- 
tainment and  dissemination  of  facts  of 
common  interest,  knowledge  of  which 
Is  essential  to  the  introduction  of  econ- 
omies, to  the  elimination  of  waste 
and  to  the  Intelligent  conduct  of  their 
business,  then  these  independent  com- 
peting units  will  be  driven  to  attain 
these  ends  through  lawfully  merging 
Into  a  comparatively  few  powerful 
corporations,  with  the  resultant  pro- 
portionate elimination  of  competition 
•which  must  inevitably  follow. 

Even  the  most  extreme  and  radical 
advocates  of  anti-trust  legislation  ad- 
mit that  the  large  industries  have  a 
very  distinct  advantage  over  the  small 
ones  because  of  their  facilities  for 
gathering,  digesting,  and  profiting 
from  information  and  data  affecting 
their  interests  concerning  market  con- 
ditions in  every  part  of  the  country. 
Obviously  the  trade  associations 
equipped  to  so  serve,  equally  and  with- 
out discrimination,  all  members  of 
the  industry,  great  and  small,  can  put 
each  and  all  of  them  in  a  more  ad- 
vantageous position  for  the  exercise 
of  an  enlightened  .self-interest  than  any 
one  member  of  the  industry,  how- 
ever strcmg,  can  through  its  Inde- 
pendent  efforts  attain,' and   is,   there- 


fore, rendering  a  signal  service  to  the 
industry  as  a  whole  and  at  the  same 
time  is  promoting  fair  and  free  com- 
petition in  the  public  interest.  In  so 
far  as  the  enlightenment  of  self-in- 
terest in  industry  is  increased,  Adam 
Smith's  law  of  supply  and  demand  is 
assisted  in  accurately  functioning  and 
reaching  a  true  balance. 

It  is  believed  that  the  so-called 
"Hardwood  Case"  (American  Column 
and  Lumber  Company,  et  al.,  vs.  The 
United  States  of  America),  decided 
December  19,  1321,  by  the  Supreme 
Court  of  the  United  States,  has  In 
some  quarters  been  misinterpreted 
and  misunderstood.  In  that  case  the 
court  simply  decides  that  the  particu- 
lar so-called  "Open  Competition  Plan" 
as  interpreted  and  administered  by  the 
American  Hardwood  Manufacturers' 
Association  was  intended  to,  and  rfid 
Ir.  fact,  restrict  production;  wa.?  In- 
tended to.  and  did  in  fact,  increase — 
not  equalize  and  stabilize — prices,  and 
hence,  notwithstanding  the  often  re- 
peated— too  often  repeated — piotesta- 
tions  of  the  officers  of  the  association 
to  the  contrary,  was  Intended  to,  and 
did  in  fact,  create  a  combination  un- 
duly and  unreasonably  restraining  free 
competition  In  interstate  commerce. 
The  Supreme  Court,  of  course,  decided 
the  Hardwood  case  on  the  particular 
record  before  it.  As  a  majority  of  the 
members  of  the  court  interpreted 
that  record,  the  members  of  the  Hard- 
wood Association  were  not  frank  in 
their  avowal  of  the  purpose  of  the 
formation  and  the  effect  of  the  o.uera- 
tion  of  the  "Open  Competition  Plan." 
Perhaps  they  were  not  even  trank 
with  themselves. 

The  lesson  to  be  drawn  from  this 
decision  is  not  that  the  law  places  an 
embargo  on  the  dissemination  of 
knowledge,  making  It  available  to  all 
the  world,  but  that  enlightened  self- 
interest  will  stop  there  and  not  seek 
either  to  fool  Itself  or, the  rest  of  the 
world  Into  believing  that  through 
cunning  devices  it  can  arrest  the 
normal  operation  of  the  law  of  sup- 
ply and  demand  without  both  the  ef- 
fect and  Its  motives  and  purposes 
being   detected. 

Certainly  the  Supreme  Court  of  the 
United  States  has  not  questioned,  and 
no  one  can  successfully  question, 
eithei'  the  legality  or  the  beneficial  re- 
sults both  to  the  general  public  and 
to  the  members  of  an  inda.stry  flow- 
ing from  the  members  of  such  indus- 
try, through  a  trade  association,  as- 
sembling, compiling  In  a  condensed 
form,  and  promulgating  data  dealing 
with  and  Recording  actual  facts — 
closed  transactions — affecting  the  in- 
dustry, stripped  of  all  expressions  of 
opinion  or  prophecy:  from  measures 
taken  by  such  association  to  strength- 
en the  industry  in  foreign  fields,  from 
the  adoption  of  uniform  terms;  from 
the  standardization  of  materials,  proc- 
e.=ses.  and  products;  from  the  stan- 
dardization of  cost  accounting,  and 
from  numerous  other  services  such  an 
association  may  render  In  matters  af- 
fecting the  common  interest  of  its 
members  as  a  whole. 

Such  an  association  wisely  conduct- 
ed will  scrupulously  avoid  being  a 
party  to  any  agreement  or  under- 
standing, express  or  Implied,  looking 
either  to  direct  fixing  or  influencing 
of   prices,   or   to   fixing   or   regulating ' 


the  volume  of  production  so  as  to 
affect  prices,  or  to  the  apportionment 
of  territory  betweef.  lU.  members  or 
others,  or  to  taking  any  measures 
curtailing  or  restraining  free  competi- 
tion. 

I  firmly  believe  f.iat  it  is  not  putting 
it  too  strongly  to  say  that,  speaking 
generally,  the  business  men  of  the 
United  States  realize  that  unfair 
methods  in  competition  and  unrea- 
sonable restraint  In  trade  and  com- 
merce, accomplished  either  directly  or 
Indirectly,  or  by  any  device  whatso- 
ever, will  not  be  tolerated;  that,  all 
other  considerations  aside,  it  is  in 
the  long  run  bad  business  policy  to 
pursue  methods  calculated  to  sup- 
press competition  and  crush  and  de- 
stroy competitors;  that  such  methods. 
while  possibly  giving  a  temporary  ad- 
vantage, are  bound  to  react  and  de- 
stroy those  responsible  for  them,  and 
that  the  great  masse*  of  the  people 
demand,  are  entitled  tj  have,  and  are 
as  far  as  lies  within  thel»  power  golrtg 
to  have,  fair  play  in  business.  The 
strong,  established,  and  successful 
units  in  industry,  in  response  to  an 
increasingly  enlightened  self-interest, 
are  rapidly  coming  to  square  f.ieir 
conduct  with  a  realization  of  these 
wholesome  truths.  Their  attitude  will 
come  to  be  more  and  more  appre- 
ciated and  their  course  applauded  and 
supported  by  the  increasingly  en- 
lightened  public   which    they   serve. 

In  this  day  of  unrest,  uprising,  and 
revolutions  throughout  the  world.  It 
behooves  the  property  ovjner,  great 
and  small,  more  than  ever  before  to 
set  an  example  of  strict  observance 
of  the  law,  right  or  wrong,  sound  or 
unsound,  so  long  as  It  is  the  law.  A 
wholesome  public  opinion  which  de- 
mands the  strict  enforcement  of  all 
law  is  the  strongest  bulwark  for  the 
preservation  of  the  rights  of  property. 

The  men  who  unselfishly  joined  In 
fighting  our  country's  battles  In  the 
mobilization  of  industry  during  the 
war  will  not  halt  now  in  whole- 
heartedly supporting  our  Government 
in  the  enforcement  of  its  laws.  They 
can  and  will  live  and  prosper  within 
the  law;  they  can  and  will  recognlzd 
the  binding  force  of.  and  their  obli- 
g:itIon  scrupulously  to  respect,  a  law, 
whether  they  approve  or  disapprove 
It.  They  must  and  will  realize  that 
their  salvation  and  the  preservation 
of  property  rights  lie  In  assisting  all 
Governmental  agencies  In  instilling  in 
the  mind  of  every  citizen  a  whole- 
some respect  fer  the  law  as  It  is  writ- 
ten, so  long  as  It  is  the  law;  that  as 
good  citizens  and  good  sportsmen  they 
will  in  the  conduct  of  their  business 
play  the  game  fairly;  that  they  are 
strong  eno\igh  and  resourceful  enough 
to  cooperate  in  a  perfectly  proper 
and  legitimate  way  with  respect  to 
those  matters  of  common  concern 
where  the  law  does  not  prohibit  co- 
operation, and  at  the  same  time  resist 
all  temptation  tending  towards  unlaw- 
ful combination. 

American  Industry  cannot  afford  to 
let,  and  I  am  convinced  will  not  let,  the 
opportunity  pass  to  demon.strate  to 
the  world  the  value  of  cooperation 
by  competing  unit^  in  any  Industry 
in  a  manner  to  promote  and  stimulate 
full,  fair,  and  free  competition  In 
the  interest  not  only  of  an  enlightened 
industry,  but  also  of  an  enllghtene4 
general  public. 


CO-OPEEATIVE    COMPETITION 


11 


March  21,  1922 

URGES   CHANGES   IN   THE    ANTI- 
TRUST LAW;  FOR  FAIR 
PRICE  FIXING 

^ ^ 

Reasonable  Projfits  to  Advantage  of  All  —  Suggests  Federal  Trade 

Commission  Regulate  Co-operation  of  Firms — Would  Prohibit 

Combinations  Where  Their  Operations  Are  Detrimental 

To  Public 


A  further  liberalization  of  the  anti- 
trust laws  so  as  to  permit  trade  asso- 
ciations in  other  fields  than  fai'ming 
and  exporting  to  cooperate  in  stabi- 
lizing prices,  under  suitable  limita- 
tions, will,  in  the  opinion  of  Henry 
R.  Seager,  professor  of  political  econ- 
omy at  Columbia  University,  be  a  step 
in  the  right  direction. 

In  explaining  his  reasons  for  thi.3 
conclusion,  Mr.  Seager  who.  from  1914 
to  1921  was  a  member  of  the  Federal 
Trade  Commission  of  the  United 
States  Chamber  of  Commerce,  first 
dwelt  on  the  highly  unsatisfactory 
results  of  the  attempt  to  enforce  the 
anti-trust  law  in  its  present  form. 
He  recalled  that  it  had  taken  twenty- 
one  years  to  bring  about  the  dissolu- 
tion of  the  trust  against  which  the 
act  of  1890  was  chielly  aimed,  the 
Standard   Oil   combination. 

As  evidence  of  the  futility  of  this 
long  litigation  h"fe  cited  declarations 
in  tbe  recent  report  of  the  Federal 
Trade  Commission  on  the  Pacific 
Coast  Petroleum  Industry  that  "the 
Standard  Oil  interests  occupy  the 
same  dominant  position  in  the 
petroleum  industry  of  the  United 
States  as  in  California  and  usually 
take  the  initiative  m  price  changes. 
The  companies  which  were  separated 
by  the  di.ssolution  of  1911  do  not  com- 
pete or  Invade  each  other's  marketing 
territory  to  any  Important  extent." 

That  there  was  still  great  uncer- 
tainty in  raference  to  the  application 
of  the  Sherman  Act  was  illustrated, 
he  pointed  out.  by  the  outcome  of  the 
recent  dissolution  suit  against  the 
United  States  Steel  Corporation,  de- 
cided In  favor  of  the  corporation,  but 
by  a  bare  4  to  3  vote  of  the 
justices  of  the  Supreme  Court,  with 
many  indications  that  the  two  justices 
not    participating    would    have    sided 


with  the  minority  had  they  voted,  and 
thus  reversed  the  decision. 

He  then  referred  to  the  large  num- 
ber of  combinations  found  by  the 
Lockwood  Committee  to  be  maintain- 
ing the  prices  of  building  materials 
in  the  New  York  market  as  evidence 
that  the  existing  machinery  for  en- 
forcing that  statute  and  the  State 
anti-trust  act  was  still  quite  inade- 
quate. 

Mr.  Seager  went  on  to  explain  that 
he  did  not  ascribe  the  failure  of  the 
Government  to  make  the  anti-trust 
laws  more  effective  primarily  to  the 
shortcomings  either  of  the  prosecut- 
ing officers  of  the  Government  or  of 
.\merican  business  men. 

"The  truth  is,"  he  said,  "that  in 
many  of  our  basic  industries  concen- 
tration of  production  in  large  units 
has  progressed  to  a  point  which  en- 
ables a  comparatively  small  number 
of  large  corporations  to  control  the 
industries.  In  the  case  of  steel  rails, 
even  as  far  back  as  18.87.  fifteen  man- 
ufacturers controlled  90  per  cent  of 
the  output  of  the  country,  and  this 
was  before  the  organization  not  only 
of  the  United  States  Steel  Corporation 
but  also  of  most  of  its  constituent  parts. 
Other  important  branches  of  the  steel 
industry  were  similarly  dominated, 
even  at  that  early  period,  by  less  than 
a  score  of  great  manufacturing  cor- 
porations. 

"Along  with  the  concentration  of 
control  Into  a  few  hands  has  gone  a 
bitter  educatiSnal  process,  which  has 
convinced  big  business  men  that  the 
cut-throat  slashing  of  prices  of  old 
days  was  not  only  wasteful,  but 
foolish.  It  is  because  of  this  convic- 
tion, probably,  even  more  than  be- 
cause of  actual  collusive  action  be- 
hind the  scenes,  that  price  slashing 
as    regards    petroleum    and    standard 


iron,  steel,  and  other  products,  has 
not  taken  place,  even  in  the  period 
of  industrial  depression,  through 
which  we  are  now  passing." 

"So  long  as  a  few  business  men  are 
in  a  position  to  control  the  great  in- 
dustries, and  so  long  as  those  business 
men  honestly  and  sincerely  believe 
that  stabilized  prices  are  to  the  l>e«t 
interest,  not  only  of  themselves,  but 
in  the  long  run,  of  the  public,  the 
penalizing  of  combinations  will  not 
deter  such  men  from  acting  in  unison, 
even  without  formal  agreements  to  do 

80." 

"And  stabilized  prices  high  enougrb 
to  provide  reasonable  profits  are  to  the 
advantage  of  the  public,  a»  well  aa  «f 
producers,"  he  added.  "We  must  have 
protection  against  combinations  In 
reasonable  restraint  of  trade,  and' 
against  the  unfair  and  exclusive  prac- 
tices to  which  monopolistic  combina- 
tions have  too  trequently  resorted,  but 
we  also  need  the  stabilizing  influence 
of  cooperation  in  business,  and  eTen 
in  price  determination,  If  we  are  te 
avoid  the  wastes  and  losses  of  th« 
period  when  steel  and  our  other  great 
staples  were  alteraatety  prince  and 
pauper." 

Benefits  of  Policy 

As  evidence  of  the  probable  benefits 
that  might  be  expected  to  result  from 
a  further  liberalization  of  the  aat^ 
trus*.  laws,  Mr.  Seager  cited  the  entl- 
meration  of  the  advantages  of  export 
trade  associations  given  in  the  laat 
report  of  the  Federal  Trade  Commis- 
sion: They  put  a  stop  to  "the  old  prac- 
tice by  foreign  purchasers  of  playing 
off  American  competitiors  one  against 
the  other."  They  facilitate  the  "coUeo< 
tion  of  information  concerning  for- 
eign market  conditions,  shipping  fa- 
cilities, and  requirements,  foreign  llsta, 
and    packing    practices, .  and   tb«  ex- 


la 


CO-OPERATIVE    COMPETITION 


change  of  constructive  ideas  among 
members." 

They  permit  "Joint  advertising,  joint 
selling  offices  and  agents,  and  the  pool- 
ing of  administrative  expense."  They 
hasten  shipments  by  permitting  the 
distribution  of  large  orders  Simong 
members.  They  Improve  the  qualities 
of  goods  shipped  by  having  inspections 
by  the  association. 

Many  improvements  in  methods  of 
handling,  of  packing,  grading,  and 
marlcing  goods  for  expoj,-*  have  also 
been  introduced.  The  importance  of 
these  benefits  to  American  exporters 
Is  further  attested  by  the  fact  that 
forty-eight  export  associations,  includ- 
ing over  a  thousand  fii-m-s,  represent- 
ing forty-three  States,  have  already 
%eeii  organized. 

"These  associations."  he  said,  "are 
prohibited  from  indulging  in  unfair 
practices  towards  non-member  Amer- 
ican firms  in  the  export  business,  and 
it  is  significant  that,  while  the  asso- 
ciations cover  almost  every  important 
Jocanch  of  our  export  ti-ade.  no  com- 
^Iaints  have  been  made  that  they 
have  used  unfair  methods." 

"Although  it  might  be  argued,"  he 
continued,  "that  this  wa.s  of  little 
SJgniflcance,  as  the  purchasers  are  all 
foreigners  and  so  not  in  a  position  to 
complain  to  the  Federal  Trade  Com- 
misslbn,  the  fact  is  that  the  prices 
charged  seem  to  have  b^en  lower, 
rather  than  higher,  than  those 
charged  in  the  home  marlcet. 

"The  situation  as  regards  export  as- 
sociations, each  one  of  which  must 
register  under  the  Federal  Trade  Com- 
mission and  submit  to  it  an  annual 
report  on  its  operations,  is  in  pleas- 
ant contrast  with  the  situation  as  re- 
gards trade  associations  in  the  build- 
ing trades  in  New  York  City  as  re- 
cently revealed  by  the  Lockwood  com- 
mittee. This  showed  tha,;  combina- 
tions to  fix  prices  were  numerous,  but 
bnofuise  in  violation  of  the  law  the 
Bieps  leading  up  to  them  were 
shrouded  in  mystery  and  their  poli- 
cies soon  developed  into  those  of 
monopolistic  conspiracies." 

Mr.  Seager  then  emphasized  the 
contrast  between  our  situation  and 
tbat  In. some  other  countries,  notably 
Germany. 

"There,"  he  sAld,  "assoclatlon.s  have 
lottg  been  encouraged  by  the  Govern- 
ment, and  there  coCperatlve  regula- 
tion of  prices  was  never  .seriou.9ly  at- 
tackeil  as  harmful  to  the  public." 


"Regulation  when  necessary  in 
Germany,"  he  added,  "is  secu'-.d  by 
the  Government's  taking  over  a  por- 
tion Of  the  indu.stry  and,  by  becoming 
itself  a  member  of  the  association  or 
cart  ell,  obtaining  the  power  to  con- 
trol in  its  price  policy.  Far  be  it  from 
me  to  advocate  the  adoption  by  this 
country  of^he  German  policy.  It  de- 
serves to  be  noted,  however,  that  all 
students  of  the  subject  agree  in 
crediting  In  large  measure  to  the  en- 
couragement given  these  combina- 
tions by  the  Government.  Germany's 
remark^^le  business  expansion  before 
ftie  war,  the  speed  with  which  she 
mobilized  her  industrial  forces  to 
prosecute  the  war,  and  her  amazing 
industrial   activity   since   the  ftvar. 

Regulation   Necessary 

"Some  degree  of  regiilRtion  will  no 
doubt  prove  necessar.v,  if  wo  follow 
the  precedent  set  by  the  export  trade 
and  the  farm  cooperation  acts  and  per- 
mit cooperation  even  with  reference 
to  prices  in  other  industries.  It  will 
be  more  in  harmony  with  our  tradi- 
tional policy  to  look  for  such  regu- 
lation not  through  Government  own- 
ership and  operation  of  Industry  but 
through  an  agency  like  the  Federal 
Trade  Commisaion  reorganized  and 
expanded  for  this  purpose,  just  as  we 
are  attempting  the  regulation  of  the 
railroads  through  the  Interstate  Com- 
merce  Commission  " 

When  asked  what  kind  of  regula- 
tion he  had  in  mind.  Prof.  Seager  re- 
plied: 

"First  and  foremost,  regulations  in- 
suring adequate  publicity  with  refer- 
ence to  prices  and  costs  and  all  re- 
lated aspects. 

"Second,  a  further  development  of 
ihe  machinery  already  in  existence  for 
enabling  the  commission  to  put  a  stop 
to  unfair  methods  of  competition. 

"Third,  should  experience  prove  this 
to  be  necessary,  an  enlargement  of  the 
power  of  the  commission  to  permit 
it  to  declare,  when  the  facts  so  war- 
ranted, that  prices  established  by  joint 
action  were  unfair  And  unreasonable, 
and  to  require  to  substitution  of  fair 
prices,  subject,  of  course,  to  court  re- 
view, as  are  the  rate  decisions  of  the 
public  service  commission.s." 

Asked  for  his  opinion  of  the  value  of 
the  coming  conference  of  repre.senta- 
lives  of  the  trade  associations  called  by 
Secretary  Hoover,  Mr.  .Seager  expressed 
high  hopes  of  what  it  might  accomplish. 
He  pointed  out  that  an  arrangement 


by  which  the  Department  of  Corrv- 
merce  would  act  as  a  clearing  house 
for  the  information  in  regard  to  Iiro- 
cluctlon,  sales,  costs,  etc.,  that  might 
be  collected  through  the  trade  asso- 
f'iations  would  go  far  to  check  the 
misuse  of  this  Information  to  the  det- 
ilment  of  the  public. 

lOxchange  of  Information  and  of 
oiiinion,  even  in  reference  to  prices, 
he  thought,  would  be  shorn  of  most 
of  its  dangers  if  such  Information 
were  not  kept  secret  by  the  members 
of  the  trade  association  concerned,  but 
shared  with  the  public.  Given  ma- 
chinery for  adequate  publicity  with 
reference  to  the  operation  of  trade 
associations,  he  believed  that  more 
liberal  views  in  reference  to  their 
legitimate  functions  would  soon  come 
to  prevail. 

In  conclusion,  Mr.  Seager  insisted 
that  the  change  which  he  proposes 
would  merely  introduce  into  the 
statute  the  interpretation  put  upon  it 
by  the  Supreme  Court  In  its  decision 
upholding  the  Steel  Corporation. 

"Already  in  the  Standard  Oil  deci- 
sion," he  said,  "the  court  held  that 
only  unreasonable  restralts  on  compe- 
tition were  prohibited.  In  the  Steel 
decision  the  court  went  further  and 
refused  to  regard  as  unreasonable  the 
restraint  growing  out  of  the  dominant 
position  of  the  Steel  Corporatl(>n  in 
the  steel  industry  since  the  evidence 
failed  to  show  that  this  dominant  posi- 
tion had  been  used  to  the  detriment 
either  of  competitors  or  of  the  public. 

"Express  declaration  in  the  law  that 
combinations  prohibited  were  those 
whose  operations  were  detrimental  to 
the  public  would  make  the  statute  no 
less  useful  and  workable  than  at  pres- 
ent but  would  concentrate  attention 
on  the  aspect  that  is  really  Important. 
If  the  law  were  so  changed,  the  stabi- 
lization of  prices  which  now  so  often 
results  from  the  tacit,  if  not  express, 
agreement  of  business  men  to  make 
their  prices  uniform  wou'd  no  longer 
be  under  the  suspicion  of  involving 
violation  of  law,  so  long  as  the  result- 
ing prices  were  fair  and  reasonable. 

"Under  these  conditions  unfair  and 
discriminatory  methods  would  still  be 
prohibited,  consumers  would  still  be 
protected  from  unreasonably  high 
prices,  and  American  business  men 
would  be  able  for  the  first  time  to 
enjoy  all  of  the  advantages  and  econ« 
omles  that  might  result  from  coopera* 
tlve  marketing." 


CO-OPERATIVE   COMPETITION 


18 


March  '22,  1922 

FOR  FULL  TRADE   REPORTS 
PROMOTE  BUSINESS 


Buyer  and  Seller  Are  Aided  by  Publicity — Open  Price  and  Open 
Competition  Basis  of  Hoover's  Plan — Adoption  of  Price 
Policy  Would  Mean  Not  Higher  Prices,  but 
Fair  Prices 


Clark  McK«rcher  of  McKercher  * 
Link,  lawyers,  who  has  b«en  active  In 
trade  movements,  Is  of  the  opinion  that 
"the  faithful  collection  and  distribution 
at  large  of  accurate  trade  data  is  in 
promotion  of  trade,"  and  that  full 
publicity  to  all  branches  of  an  in- 
dustry makes  for  fairness  and  legality 
in  all  trade  association  work. 

"With  the  exception  of  organizations 
having  to  do  with  agricultural  products 
and  wage  scales  to  govern  the  price 
of  labor,  and  certain  operations  in 
merchant  marine  made  immune  by 
special  act  of  Congress,"  said  Mr.  Mc- 
Kercher. "I  know  of  no  existing  trade 
organization  whose  members  do  an 
interstate  commerce  business,  that  has 
a  price  policy,  if  by  that  term  you 
mean  a  definite  agreement  or  secret 
understanding  In  any  form  whereby 
the  selling  price  is  predetermined  or 
unduly  influenced  to  a  uniform  scale." 

He  added  that  his  knowledge  of  the 
subject  and  interest  In  it  was  limited 
to  that  acquired  as  counsel  on  legal 
matters  to  industrial  units  and  to 
some  societies  of  national  scope,  but 
that  investigation  and  research  of 
means,  ipethods,  and  results  led  un- 
avoidably to  this  conclusion. 

In  response  to  a  question  about  a 
possible  contrary  view  in  the  minds 
of  the  publlc-at-Iarge,  Mr.  McKercher 
expressed  the  opinion  that  this,  if  it 
existed,  was  largely  due  to  featuring 
in  the  public  press  Isolated  cases  of 
clear  violations  of  law,  of  profiteering, 
and  oppressive  agreements  calculated 
to  control  the  distribution  of  commodi- 
ties, and  largely  confined  to  tlntra- 
state  business,  or  Induced  by  local  con- 
ditions. 

"I  do  not  deny,  of  course,"  he  said, 
"that  such  iniquities  have  bet-n 
charged  and  proved  in  prosecutions, 
but    I   affrpp   with      ihe     Spcretary      of 


Commerce  to  the  effect  that  the 
abuses  in  cooperative  work  are  the 
exception  and  not  the  rule. 

Change  in  Methods 

"  This  is  especially  true  in  price  stru  - 
ture.  The  prosecution  in  the  'Bath 
Tub  Trust,"  held  to  be  a  subterfuge  to 
control  the  price  of  the  finished  prod- 
uct by  patent  license  manipulation, 
and  the  brakeshoe  cases,  showing  the 
old  plan  of  the  Parks  pool,  were  not 
the  sole  remedial  features  In  the  re- 
form of  business  methods  of  some 
years  ago.  The  abandonment  of  these 
ancient  forms  of  price  and  competition 
control  was  largely  due  to  the  com- 
plete change  in  methods  of  merchan- 
dizing. 

"In  many  trades  the  buyer  finds  a 
price  more  or  less  uniform.  Without 
knowledge  of  actual  conditions  rhe 
buyer  concludes  immediately  that 
there  is  some  secret  agreement  be- 
tween competing  producers  to  main- 
tain that  uniform  price.  In  nearly 
every  case  It  will  be  found  that  in 
that  trade  there  Is  one  great  leader 
that  marks  the  price  path  which  every 
competitor  must  follow. 

"In  nearly  every  case  the  one  leader 
is  not  a  member  of  any  trade  or- 
ganization. All  others,  not  so  well 
equipped  In  either  manufacturing  or 
sales  facilities,  must  of  course  fol- 
low. They  could  not  do  business  In 
staple  products  in  any  other  way. 
Whether  or  not  they  are  organized 
into  a  trade  association  has  nothing 
to  do  with  it.  That  is  one  of  the 
reasons  why  trade  organizations,  as 
such,  have  no  'price  p61lcy.'  It  would 
be  useless. 

"The  early  days  of  the  'open  price' 
and  'open  competition'  movement  had 
a  great  influence.  The  first  advocat  ■ 
of  these  methods,  the  late  Arthur 
.Terome  Kddy,  had  a.s  his  main  text  in 


1907  true  publicity  of  all  trade  dat^i 
for  the  benefit  and  guidance  of  every 
one  Interested,  the  producer.  tk« 
merchant,  and  the  consumer. 

Secretary  Hoover's  Plan 

"The  soundness  of  his  theory  is 
exemplified  in  the  permissive  featurM 
of  the  moat  recent  official  comment* 
on  methods  of  trade  associations  witb 
reference  to  their  relations  with  Qov- 
ernment  institutions.  It  is  the  kefh 
note  of  Secretary  Hoover's  plan. 
'  "The  adoption  of  this  princlpl*  Is 
of  far  crreater  importance  than  is  rs* 
fleeted  In  the  desire  of  manufacturer 
merchants  to  keep  within  the  tcchnl- 
cal  rules  of  law.  If  of  any  value  at 
all  it  must  be  considered  as  a  funda- 
mental principle  in  trade  economics. 

"That  full  publicity  to  all  brancbea 
of  an  industry  makes  for  fairness  and 
legality  in  all  trade  aasociation  work 
is  clear.  One  prominent  manufao- 
turer  expressed  It  a  few  months  ag« 
thus: 

"  'I  believe  that  if  my  customer  keeps 
himself  Informed  as  to  the  demand  of 
the  buying  public.  If  he  learns  the 
course  and  volume  of  production.  If 
he  even  understands  the  margin  be> 
tween  my  cost  and  my  selling  price, 
If  he  knows  in  a  general  way  tba 
conditions  of  stocks,  sales,  and  ahip* 
ments,  he  will  be  a  better  buyer,  a 
better  merchant.  He  will  do  less 
speculating.  Hs  will  not  induce  me  to 
manufacture  goods  not  needed  and 
which  ultimately  one  of  us  must  <dear 
out  at  a  iosM.' 

"If  this  is -clear,  then  It  must  fol- 
low that  the  faithful  coUsctloii  and 
distribution  at  large  of  accurate  trade 
data  Is  In  promotion  of  trade  and 
that  business  Is  once  more  controlled 
absolutely  by  the  law  of  supply  and 
demand,  wholly  uninfluenced  by  spec- 
ulative activities. 

"In  one  large  trade  at  this  moment 


u 


CO-OPERATIVE    COMPETITION 


plans  are  under  way  to  publish  dally 
price  lists  that  heretofore  have  been 
made  up  for  trade  papers  by  the  buy- 
ing half  of  the  industry,  the  whole- 
sale merchants  who  do  not  always  re- 
flect the  actual  mill  prices.  The 
manufacturers  believe  that  these 
price  ranges  and  fluctuations  as  pub- 
lished in  daily  New  York  papers  should 
be  correct,  and  they  propose  to  sub- 
mit the  actual  record  of  sales  every 
day. 

"A  great  deal  of  honest  trade  as- 
sociation work  has  suffered  by  the 
use  of  these  trick  names,  'Open  price' 
and  'Open  competition.'  The  original 
purpose  in  this  method  was  to  secure 
in  the  whole  of  each  industry  every- 
thing that  this  'open'  implies.  It  was 
advocated  that  the  customer  was  just 
as  much  entitled  to  his  share  in  price 
making  as  the  manufacturer  members 
of  a  cooperative  body.  The  author 
of  'The  New  Competition'  preached 
this  doctrine  in  no  uncertain  lan- 
guage. 

"But  the  occasional  misuse  of  the 
Idea  brought  the  term  Into  such  dis- 
repute that  many  of  the  societies  using 
it  are  looked  upon  with  more  or  less 
suspicion.  This  has  prevented  some 
societies,  whos;,  activities  related  al- 
most wholly  to  distribution  of  price 
data,  from  full  participation  in  the 
work  promoted  by  the  Department  of 
Commerce. 

"When  an  open  price  Is  in  fact  and 
practice  a  price  open  to  the  entire 
trade,  buyer  and  seller  alike,  there 
can  be  little  doubt  of  Us  acceptability 
»s  statistical  data  ct  real  importance. 

"A  great  many  of  these  organiza- 
tions, as  a  matter  of  fact,  are  not 
concerned  about  the  unit  price  at  all. 
They  are  busily  engaged  in  other 
work  of  far  greater  importance  of 
undoubted  legality  and  general  bene- 
fit, and  resent  the  form  of  public  ac- 
cusation and  abuse  to  which  nearly 
all  trade  bodies  have  been  subjected 
In  the  past  few  months.  Some  of  them 
have  abandoned  work  of  the  greatest 
usefulness,  not  only  to  themselves,  but 
to  the  buying  public,  along  lines  not 
touching  price  matters  at  all,  rather 
than  be  held  up  to  public  scorn  in- 
duced by  reckless  and  extravagant  al- 
legations of  fraud  and  violations  of 
law. 

"As  the  result  of  this  baneful  prop- 
aganda   there  seems    to    exist   in    the 


public  mind  a  fins  conviction  that  one 


of  the  principal  objects  of  bu.sine.s.s 
men  in  any  form  of  cooperative  effort 
is  to  find  a  safe  means  of  evading  the 
anti-trust  laws.  There  may  be  such, 
but  the  real  truth  is  that  90  per  cent 
of  them  .<ipend  a  great  deal  of  time 
and  money  in  finding  means  with 
which  to  insure  the  fullest  compli- 
ance with  these  laws.  They  want 
their  share  of  whatever  protection  the 
law  affords  and  violation  of  any 
•statute  is  the  one  great  thing  they  fear 
and   abhor. 

"To  some  extent  Secretary  Hoover 
has  shown  the  way  to  avoid  some  of 
these  doubtful  procedures.  The  pro- 
gramme of  the  Department  of  Com- 
merce with  reference  to  domestic  busi- 
ness is  believed  to  be  one  of  the  first 
constructive  thoughts  that  has  come 
from  a  governmental  agency  in  years 
that  is  pertinent  to  existing  conditions 
and  that  is  practically  helpful. 

Worth  an  Earnest  Trial 

"It  is  .well  worth  an  earnest  and  pa- 
tient trial,  not  wholly  because  it  sug- 
gests to  a  reasonaole  extent  immu- 
nity from  accusation  of  illegality,  bi^t 
because  it  is  intended  to  correct  a 
condition,  to  remove  a  great  difficulty 
that  persecution  and  most  prosecu- 
tions simply  increase. 

"In  the  last  analysis  the  faulf  la 
not  so  much  with  the  anti-trust  laws 
themselves  as  in  the  method  of  their 
enforcement  without  a  thought  ot 
consequences  or  the  effect  on  the 
trade  for  the  benefit  of  which  they 
are  supposed  to  be  enforced. 

"While  it  has  been  stated  that  a 
'price  policy'  is  not  an  essential  ele- 
ment in  the  successful  operation  of 
a  large  proportion  of  trjtde  bodies, 
there  is,  of  course,  not  the  slightest 
doubt  that  their  el¥orts  are  directed  to 
Improvement  in  business  conditions,  to 
the  end  that  the  manufacturer  anJ 
merchant  members  may  be  assured  ot 
a  profit  in  their  business  ventures. 

"That  this  desire  must  involve  a 
concerted  movement  to  enhance  the 
price  or  to  make  it  uniform  is  a  f.  1- 
lacy.  That  it  does  involve  an  at- 
tempt to  secure  a  fair  profit  is  true. 
There  is  before  me  a  graph  chart  In 
a  sub.stantial  industry  showing  the 
relation  of  cost  to  selling  price  cover- 
ing the  period  by  years  and  months 
from  1914  to  date.  And  while  the 
price  line  is  still  148  per  cent  above 
the  1914  line,  the  cost  line  is  164 
per  cent  above  the  pre-war  year.     It 


would  be  a  revelation  to  the  public;  § 
the  great  consumer,  if  similar  charts  * 
could  be  published  in  all  Industries. 

Seek  Light  on  Business 

"The  universal  demand  for  light  on 
business  problems  and  conditions  is 
shown  in  the  proceedings  of  the  late 
National  Conference  ot  Unemployment 
at  Washington,  where  a  prominent 
economist  declared: 

"  'That  one  of  the  chief  causes  of 
industrial  depression  is  to  be  found 
in  the  lack  of  information  available 
to  business  men  as  to  certain  facts 
connected  with  their  business.  The 
farsighted  business  man  is  cften  com- 
pelled to  rely  upon  pure  guesses  or 
arbitrary  estimates.  Were  he  to  b" 
provided  with  the  actual  facts,  ho 
would  often  act  very  differently.  Sta- 
biiization  of  business  and  the  avoid- 
ance of  recurring  industrial  depression 
and  crises  are  in  no  small  measure 
dependent  upon  a  more  complete 
knowledge  of  the  factors  affecting  the 
business  situation.' 

"That  is  the  purpose  of  Secretary 
Hoover's  monthly  'Survey  of  Current 
Business,'  to  make  better  manufac- 
turers, better  merchants,  and  better 
buyers.  With  but  two  exceptions 
within  my  knowledge,  manufacturing 
orga«izations  have  welcomed  the 
guidance  and  suggestions  of  these 
public  officials,  and  will  render  all  the. 
assistance  in  their  power  to  promote 
this  educational  work  by  which  it  la 
hoped  to  secure  a  permanent  revival  of 
business. 

"None  Is  averse  to  a  public  state- 
ment of  all  their  plans  and  activities. 
There  is  not  one  that  I  know  about 
that  opposes  at  all  any  sort  of  li- 
censing or  i-egulation  by  any  govern- 
mental agency.  Federal  or  State,  and 
a  great  many  trade  bodies  strongly 
approve  of  such  a  course. 

"They  resent  the  continued  interfer- 
ence with  their  individual  right  to  fix 
their  manufacturing  and  selling  plana 
and  prices  in  accordance  with  their 
own  individual  necessities,  but  they 
recognize,  too,  the  rule  that  they  may 
not  lawfully  do  collectively  in  a  trade 
association  what  they  are  privileged 
to  do  individually. 

"What  they  do  demand  is  equal  pro- 
tection of  the  laws,  and  they  are  unal- 
terably opposed  to  class  legislation 
which,  largely  as  a  political  expedient, 
extends  immunity  to  one  producer 
class  at  the  expense  of  the  other."' 


CO-OPERATIVE   COMPETITION 


15 


March  2^,  1^22 

IMPROVED   PRODUCTS   AT   LOW 

COST,  AIM  OF  TRADE 

ASSOCIATIONS 


"Open  Price"  Methods  Explained — Government  Can  Best  Deal  With 

Groups  in  Collecting  Information — Business  Men  Should 

Know  Trade  Facts  for  Their  Own  and  Public's  Benefit 


By  0.  B.  TOWNE 
Secretary-Treasurer  of  the  Wax  Paper  Manufacturers'  Association 


Trade  associations  have  been 
brought  into  the  lime  light  recently 
because  of  tho  searching  investiga- 
tions the  Federal  authorities  have 
been  making  into  the  conduct  of  a 
flw.  The  offences  charged  and 
proved  are  ameng  the  four  prohibi- 
tions of  the  Sherman  Anti-Trust  act: 

(1)  Price  fixing. 

(2)  Conspiracy  to  restrain  trade. 
-     (3)    dividing  sales  territory. 

(4)  Restricting  production  and  out- 
put. 

Many  feel,  among  them  some  of  our 
best  business  men,  that  the  respon- 
•ibility  for  these  offences  may  be  laid 
at  the  door  of  the  "open-price  asso- 
ciation" idea.  Disregarding  that  point 
for  the  instant,  all  of  the  above-men- 
tioned offences  are  offences  legally, 
und  have  been  so  pronoQnced  by  the 
highest  court  of  the  land  in  its  in- 
terpretation of  the  Sherman  anti-trust 
act.  AH  these  offences  are  in  contra- 
vention of  the  principles  of  democracy. 
No  room  for  argument  there.  Neither 
is  there  any  argument  about  their  be- 
ing morally  wrong.  Now  let  us  in- 
quire-whether  these  wrongs  may  be 
logically  the  only  result  of  the  "open- 
price  association"   idea. 

The  "open  price  association"  idea  is 
the  exchange,  by  those  engaged  in 
the  same  line  of  business,  through  a 
central  office  or  headquartets,  of  de- 
tailed data  on  costs  charged  against 
the  product  manufactured,  bids  made 
In  competition  and  prices  received  for 
the  product  sold;  also  information  on 
all  inventory  and  stock  on  hand. 
Please  note  that  all  this  infoi-mation 
has  to  do  with  transactions  already 
completed.  An  exchange  of  printed 
price  lists  is  often  included.    All  this 


information  is  gathered,  tabulated, 
and  distributed  through  a  central  of- 
fice with  a  trained  man  In  charge. 

The  Present  Practice 

We  must  not  get  the  idea  that  there 
is  no  other  way  by  which  business 
men  may  obtain  this  information. 
They  will  get  it  any  way  in  the  com- 
mon course  of  business  and  have  been 
doing  so  for  years.  They  get  it 
through  their  salesmen  and  custom- 
ers, through  trained  market  men, 
through  correspondence  and  the  per- 
sonal exchange  of  price  lists — a  com- 
mon practice  of  long  standing, 
whether  the  line  of  business  is  organ- 
ized or  not. 

Occasionally  we  find  a  trade  asso- 
ciation which  has  ceased  to  be  demo- 
cratic. When  this  is  true  it  becomes 
autocratic.  A  trade  association  is  a 
voluntary  body,  and  the  only  hold  it 
has  on  its  members  is'  its  service  to 
those  members.  If  the  autocratic  idea 
creeps  in,  the  association  either  con- 
solidates and  becomes  a  trust  with  a 
tew  minds  in  absolute  control  of  the 
situation  or  else  it  goes  to  pieces. 
,  To  consolidate,  the  few  must  have 
the  capital  and  the  superior  personal 
ability  with  which  to  do  the  consoli- 
dating. But  to  go  to  pieces,  all  a 
trade  association  needs  is  a  grievance, 
real  or  fancied,  which  separates 
member  from  member  and  destroys 
the  organization's  internal  cohesion. 
Trade  associations  have  been  ac- 
cused of  price  fixing.  Let  us  take  a 
look  at  price  fixing.  This  implies  the 
ostablishment  and  the  maintenance  of 
a  definite  price  for  a  specific  com- 
modity. The  method  by  which  these 
things  are  done  are  not  pertinent,  for 
there  are  no  set  methods.    Humanity 


is     not     sutHciently     standardized     to 
make   set   methods   possible. 

Price  fixing  implies  complete  con- 
trol of  the  source  of  supply  and  of 
the  output  of  the  product.  It  implies 
steady  and  uninterrupted  prosperity, 
with  conditions  so  stabilized  that  the 
demand  will  be  constant  and  with  no 
substitutes  possible.  It  also  implies 
submission  on  the  part  of  all  con- 
cerned. But  successful  price  fixing  is 
economically  impossible.  The  law  of 
supply  and  demand,  the  adaptability 
of  human  nature  to  the  use  of  substi- 
tutes, the  changing  of  human  desires, 
and  the  human  tendency 'to  follow  the 
line  of  least  resistance  make  it  Im- 
possible. 

Theoretically,  when  money  is  plenti- 
ful and  the  buying  public  seeks  the 
goods,  the  seller  can  put  up  his  prte* 
and  still  sell.  He  can  continue  to  in- 
crease the  price  so  long  as  he  does 
not  interfere  with  the  steady  flow  of 
trade. 

But  when,  because  of  the  lack  of 
funds  with  which  to  buy,  or  because 
of  the  greater  desirability  of  other 
products,  the  seller  has  to  take  busi- 
ness to  the  buying  public  in  order  to 
keep  trade  moving,  tht  seller  offers 
an  inducement  to  attract  the  buyer. 
He  will  reduce  his  price,  for  a  cer- 
tain amount  of  trade  and  business  are 
necessary  if  the  business  concern  is 
to  live.  The  seller  will  not  maintain 
any  fixed  price  when  his  business  is 
in  danger. 

Price  fixing  needs  steady  prosperity 
to  make  it  a  success.  But  prosperity 
is  never  steady.  It  comes  like  a 
hard  rain  and  then  the  water  recedes, 
sometimes  gradually  while  it  soaks 
in  and  stays  in  the  soil  for  a  long 
time,    or    else    it    recedes    so    rapidly 


16 


CO-OPERATIVE   COMPETITION 


that  it  brings  widespread  destruction, 
trouble,  and  distress.  The  channels 
for  the  circulation  of  the  wealth  of 
tlie  world  change  and  with  this  change 
comes  the  change  In  the  flow  of  trade, 
and  the  effort  to  adjust  business  to 
meet  new  conditions. 

These  are  some  of  the  reasons  why 
price  fixing  is  economically  impos- 
■ible.  The  same  thing  applies  not 
only  to  the  prices  of  •  ommodities, 
but  to  the  charges  for  service, 
whether  in  the  form  of  labor,  mechan- 
ical skill,  technical  or  intellectual 
skill.  The  same  principle  applies  to 
all  and  the  fixed  price  idea  is  as  un- 
sound, economically,  in  all  of  them 
as  It  is  in  any  one. 

The  development  of  commerce  in  aU 
Its  phases  «nd  the  recession  of  the 
frontier  in  all  lines  of  trade  have 
turned  business  back  upon  itself. 
When  the  field  of  expansion  is  with- 
out limit  the  Idea  in  commerce  and 
industry  is  quantity  production.  When 
the  limits  are  in  sight  the  efforts  of 
commerce  and  industry  are  turned  In- 
ward and  the  idea  Is  quality  produc- 
tion.   This  Is  also  an  economic  fati. 

The  latter  Is  exactly  what  commerce 
and  Industry  are  doing  through  their 
trade  associations.  Perfection  in  man- 
ufocturing  and  marketing  methods  at- 
tract the  attention  of  the  best  busi- 
aess  minds  of  the  country.  They  are 
vital  problems.  Improvement  in  these 
lines  means  reduction  In  the  cost  of 
production.  Reduced  costs  are  a  dis- 
tinct advantage  to  business,  and  not 
only  reward  the  effort,  but  place  a 
premium  on  the  technical  and  intel- 
leetual  skill  of  the  indlvidiiaj  concern. 

The  trade   association   Is   the   only 


means  known  whereby  men  in  com- 
merce and  industry  can  come  together 
voluiitarily  for  the  solution  of  their 
common  problems.  In  the  trade  asso- 
ciation they  get  together  on  a  basis 
of  democracy  and  work  for  the  solu- 
tion of  those  problems  wljlch  are  com- 
mon to  all. 

A  National  Necessity 
The  trade  association  is  a  national 
necessity.  The  nations  of  the  earth 
are  more  dependent  upon  legitimate 
business  now  than  ever  before.  The 
United  States  Government  is  more  de- 
pendent upon  the  commercial  success 
of  this  country  than  we  think  and 
more  so  than  many  are  willing  to  ad- 
mit. Branches  of  commerce  and  In- 
dustry are  so  dependent  upon  one  an- 
other for  their  success  that  depression 
In  or  the  disruption  of  one  line  spreads 
trouble  throughout  all  others  to  which 
it  is  related. 

The  Government  has  an  Immediate 
task  to  perform.  It  must  find  out 
the  facts  about  commerce  and  indus- 
try before  it  can  do  anything.  This 
can  be  done  most  economically  and 
Intelligently  by  dealing  with  groups. 
Tills  at  the  outset  places  the  stamp 
of  necessity  upon  the  group  organi- 
zation— the  trade  association.  The 
prime  requisite  for  cooperation  be- 
tween the  Government  and  business  Is 
oonfldence.  This  is  Impossible  without 
intelligent  Information  about  actual 
facts  or  without  a  mutual  understand- 
ing of  the  needs  and  the  means. 

There  are  three  things  a  trade  as- 
sociation can  do.  All  of  them  are 
progressive  and   have  nothing  to  do 


with  prices  beytjnd  an  intelligent  un- 
derstanding of  and  the  Improvement 
of  the  costs  of  production  on  the 
basis   of   cost   principles. 

(1)  Improve  the  quality  and  in- 
crease the  quantity  of  and  perfect 
the  channels  of  access  to  the  raw 
material  source. 

(2)  Improve  and  perfect  the  proc- 
esses of  manufacture  and  production, 
eliminate  waste,  utilize  the  by-prod- 
ucts, standardize  and  simplify  the 
product  and  increase  its  uses. 

(3)  Understand  and  Improve  the 
present  market,  study  and  develop 
new  markets,  and  keep  abreast  of 
changing  market  demande.  i 

There  is  so  much  really  being  done 
that  some  trade  associations  have  de- 
veloped into  "institutes"  and  "foun- 
dations" with  corps  of  investigators 
and  faculties  of  Instructors.  They  are 
successful  because  they  realize  that 
fundamental  conditions  must  be  right 
regardless  of  any  temporary  ripples 
which  may  appear  on  tha  surface  of 
affairs. 

Only  a  Group  Effort 

A  trade  association  is  only  a  group 
effort  for  a  group  purpose  that  is  vital 
to  the  per-manent  success  of  Its  line 
of  business  or  industry.  It  likewise 
has  its  group  responsibility  to  Itself, 
to  the  Government  which  protects  Its 
members,  and  to  humanity.  All  those 
trade  associations  which  recognize 
these  facts  are  making  successful 
progress,  beneficial  to  all  with  whom 
their  members  come  in  contact.  4ut 
the  few  wiio  do  not  are  getting  into 
trouble  with  amazing  regularitj;. 


CO-OPERATIVE    COMPETITION 


11 


March  24,  192. 


TRADE    REPORT   IS   WEATHER 

VANE  AND  COMPASS 

OF  BUSINESS 


Has  Legitimate  Place  in  Commerce — Public  Benefits  From  Open 
Competition — Trade  Associations  Can  Best  Furnish  Infor- 
mation on  Industrial  Conditions 


By  R.  S.  KELLOGG 

Secretary  News  Print  Service  Bureau 


L^ftlglatures  are  often  urged  to  paas, 
and  frequently  do  pass,  "blue  sky" 
laws,  the  purpose  of  whlth  Is  to  pre- 
vent misrepresentation  on  the  part  of 
promoters  and  security  venders.  It  Is 
assumed  that  It  only  the  truth  is 
permitted  to  be  stated  in  matters  of 
speculation  and  Investment,  the  buy- 
ing public  should  be  left  to  spend  its 
money  as  it  sees  fit  after  having  been 
given  the  basis  for  Judgment. 

If  it  were  not  made  a  punishable 
offerice  to  circularize  untruth  and  lure 
the  unwary  to  financial  destruction, 
the  unfortunate  victim  might  Justly 
claim  that  society  had  not  given  him 
the  protection  to  which  he  is  entitled. 
It  is  a  prime  function  of  govemmont 
to  see  that  all  players  observe  the 
rules  set  up  for  the  game  of  life.  Only 
thus  is  there  opportunity  for  industry 
to  reap  its  legitimate  reward,  for  sav- 
ings to  accumulate  and  be  used  for 
good  purposes,  and  for  men  and 
nations  to  progress. 

Do  the  people  of  this  country  want 
business  to  be  done  on  a  basis  of 
the  "blue  sky"  or  do  they  prefer  tl.at 
manufacturing  and  merchandizing  be 
liased  upon  exactly  ascertained  facts? 

A  knowledge  of  all  related  conditions 
is  a  necessary  prerequisite  to  any  suc- 
cessful undertaking— industrial,  finan- 
cial, social,  or  otherwise.  Without  the 
facts,  one  is  dealing  in  "blue  sky"  even 
though  his  intentions  be  of  the  best. 
The  growth  of  modern  business  com- 
pels the  constant  study  and  use  of  a 
great  volume  and  variety  of  statistics 
— not  the  dry-as-dust  kind  that  are 
embalmed  in  interminable  pages  of  fig- 
ures published  long  after  their  sig- 
nificance is  past,  but  up-to-the-minute 
records  curved  and  chartered  to  show 


ebbs    and    flows    of    production,    con-    to  accept  direction  without  responsl- 


sumptlon,  stocks,  and  prices  of  com- 
modities, the  volume  and  character  of 
financial  transactions,  the  size  and 
kind  of  demand  that  must  be  met,  the 
means  available  to  fill  it,  the  cost  of 
materials,  manufacture,  and  distribu- 
tion. 

Business  Weather  Vanes 

All  these  and  many  other  fact.s 
must  be  constantly  available  In 
grap'  ic  form.  They  are  compass, 
weather  vane,  and  barometer  of  busi- 
ness and  industry  under  modern  con- 
ditions, and  absolutely  Indispensable 
to  the  maintenance  of  adequate  ser- 
vice to  the   public. 

Granted  that  statistics  are  neces- 
sary, who  i."?  tc^  compile  and  dis- 
tribute them? 

One  set  of  well-intentioned  theorists 
says  that  only  the  Government  can 
be  trusted  to  compile  and  publish 
such  records  complltely  and  impar- 
tially: that  business  and  lnrtu.=try 
cannot  be  relied  upon  to  tell  the  truth 
aliout  conditions  therein  to  the  public. 

The  man  of  affairs  who  constantly 
deals  with  practical  problems  of  great 
.size  replies  that  no  Government  bu- 
reau or  department,  no  matter  how 
ably  manned  and  administered,  could 
assume  the  task  of  compiling  daily, 
weekly,  and  monthly  all  the  statis- 
tical data  required  for  the  successful 
operation  of  the  industry  and  com- 
merce of  the  United  States,  and  were 
it  physically  possible  to  collect  the 
data  in  this  fashion,  it  would  be  of 
no  more  immediate  value  than  a  cen- 
sus report  when  published. 

Unless  we  are  ready  to  concede  that 
commerce  and  industry  are  to  be  di- 
rected entirely  from  Washington  and 


billty  for  results  (of  which  we  have 
had  a  shining  example  or  two),  we 
must  in  the  future  as  in  the  past  de- 
pend upon  the  Initiative,  energy,  and 
resourcefulness  of  our  citizens  to  in- 
vent new  processes,  to  manufacture 
cheaply  and  distribute  widely  tlie  prod- 
ucts which  are  essential  to  modern 
life.  Freedom  of  action  so  long  as  the 
game  is  played  fairly  should  be  grant- 
ed by  the  public,  which  is  ever  quick 
to  demand  cheap  and  efilcient  servios, 

Trade  Associations  Can  Do  It 

Only  through  trade  associations  In 
it  possible  for  the  thousand  and  oi»« 
essential  industries  and  commercial 
activities  of  the  country  to  secure 
promptly  and  accurately  the  diversi- 
fied s>.«.^;stics  that  are  necessary  to 
the  production  of  the  commodities  and 
the  rendering  of  the  services  which 
the  public  must  have. 

Without  associated  effort  everr 
railroad  in  the  country  would  still  be 
maintaining  Ks  own  gauge  and  there 
could  be  no  through  transportation  of 
freight  or  passengers,  and  order  for 
lumber  or  millwork  could  not  be 
placed  with  any  certainty  as  to 
what  would  be  received,  automobile 
tirea  would  not  be  interchangeable 
nor  could  one  buy  such  a  simple 
thing  as  a  screw  with  more  than  half 
a  chance  of  getting  a  right-hand  one. 

The  service  rendered  to  the  public 
by  voluntary  associations  of  pro- 
ducers in  the  field  of  standardization 
aloiie  amounts  to  incalculable  savings 
in  costs,  not  counting  the  immeasur- 
able gain  in  reliability  of  product 
which  standardization  brings  about. 

But  statistics  are  no  less  essential 


18 


CO-OPERATIVE    COMPETITION 


th&n  8tandardi2sation  among  the 
manifold  helpful  activities  of  trade 
associations,  which  there  is  no  space 
here  even  to  enumerate. 

What,  then,  do  commerce  and  in- 
dustry in  the  United  States  demand 
as  basic  rights  with  respect  to  statis- 
tical information  not  only  for  the  suc- 
cessful conduct  of  their  own  affairs  but 
in  order  that  they  may  serve  the  pub- 
lic  adequately   and   efficiently? 

They  assert  that  they  have  the  in- 
herent right  to  collect  and  distribute 
through  their  trade  organizations 
statistics  as  to  volume  of  production, 
shipments,  stocks,  orders,  costs,  wage 
rates,  market  conditions  as  to  iheir 
own  and  competing  commodities,  all 
Impartially  compiled  by  a  trained  as- 
sociation executive  and  supplied  with- 
out coloring  by  him  to  all  who  have 
a  legitimate  Interest  In  the  matters 
dealt  with. 

Only  upon  such'  a  basis  of  facts  is 
it  possible  for  the  public  to  be  serveJ 
in  the  manner  it  demands.  Facts 
are  sometimes  disconcerting,  but  never 
8o  damaging  as  the  gossip  w^hich  cir- 
culates when'  facts  are  not  available. 
Business  done  by  daylight  is  perma- 
nently more  successful  than  that  (jone 
In  darkness,  and  while  the  public 
may  reap  a  temporary  advantage  from 
blind  competition  of  either  buyers  or 
sellers,  the  public  in  the  long  run 
pays  the  bills  for  all  economic  losses. 

How  Plan  Works 
Because  of  the  peculiar  nature  of 
tiieir  business  the  manufacturers  of 
newsprint  paper  have  for  years  been 
■tlbject  to  fill  kinds  of  attacks  by  their 
eustomers,  by  politicians,  and  by  no- 


toriety seekers;  nevertheless,  because 
information  must  be  had  If  operations 
are  to  be  successfully  conducted,  the 
manufacturers  have  built  up  a  system 
of  statistical  reports  among  the  best 
in  the  trade  association  field,  the  re/ 
suits  of  which  are  freely  given  to  and 
used  by  their  customers,  by  the  trade 
and  financial  press,  and  by  all  Govern- 
ment bureaus  interested  in  this  par- 
ticular subject. 

An  example  of  the  kind  of  statistical 
work  that  is  of  value  to  many  trade 
associations  is  the  monthly  tabulation 
of  the  volume  of  newspaper  advertis- 
ing in  New  York  City  made  by  the 
Evening  Post,  which  at  this  time  indi- 
cates improved  business  cohditions. 
Comparing  the  total  volume  of  news- 
paper advertising  in  the  first  two 
months  of  1922  with  the  total  foi- 
January  and  February,  1921,  we  find  a 
gain  of  6  per  cent  in  lineage. 

The  most  notable  feature  is  that 
while  local  advertising  shows  a  small 
gain  in  1922  over  the  large  volume 
carried  during  the  same  period  of  1921, 
foreign  advertising  shows  an  increase 
of  24  per  cent,  which  is  some  indica- 
tion of  the  extent  to  which  the  manu- 
facturers of  nationally  advertised  com- 
modities are  vigorously  fighting  to 
bring  the  volume  of  their  sales  back  to 
normal  after  the  period  of  depression. 

Foreign  advertising  amounted  to  18 
per  cent  of  the  total  volume  of  Nfew 
York  City  newspaper  advertising  dur- 
ing the  first  two  months  of  1922  and 
to  15  per  cent  of  the  total  volume  dur- 
ing the  first  two  months  of  1921.  Dur- 
ing January  and  February,  1922,  for- 
eign advertising  wa%  20  pei.  cent  of  the 
total  volume  of  advertising  carried  In 


the  morning  papers,  17  per  cent  of  the 
total  in  the  evening  papers,  and  18 
per  cent  of  the  total  in  Sunday  papers. 
A  progressive  improvement  is  indicat- 
ed by  comparisons  of  the  separate 
months. 

The  total  volume  of  advertising  of 
all  kinds  in  all  the  issues  of  the  New 
York  City  newspapers  in  January,  • 
1922,  was  3.5  per  cent  more  than  in 
January,  1921,  while  in  February,  1922, 
the  increase  was  8.5  per  cent  over  the 
volume  in  February  last  year.  Heavy 
increases  are  noted  in  automobile  ad- 
vertising, while  the  volume  of  space 
devoted  to  dry  goods,  fu.-niture,  and 
real  estate  has  been  especially  well 
sustained.  Examples  of  this  kind 
might    be    cited    without   number. 

The  recent  exchange  of  letters 
among  the  department  heads'  at 
Washington  has  accomplished  two 
things: 

(1)  The  importance  and  necessity  of 
trade  association  activities  have  betn 
called  to  the  attention  of  the  public 
in  conspicuous  fashion. 

(2)  It  has  been  once  more  stated 
that  agreements  to  fix  prices,  limit 
production,  and  div.de  territory  are  il- 
legal and  will  be  prosecuted,  as  they 
should  be. 

•In  short,  every  business  man  has 
the  right  to  know  all  the  essential 
tacts  in  connection  with  the  produc- 
tion and  distribution  of  his  product 
or  the  furnishing  of  the  type  of  ser- 
vice which  he  supplies,  but  he  has  no 
moral  or  legal  right  through  agree- 
ment with  his  competitor  to  endeavor 
to  bring  about  an  artificial  condition 
beneficial  to  himself  and  hurtful  to 
the  public. 


CO-OPERATIVE    COMPETITION 


19 


March  25,  ig22 


TRADE    GROUPS    HAVE    LEGITI 

MATE  PURPOSES  UNDER 

FEDERAL  LAW 


Review  of  Late  Court  Decisions — Circulation  of  Reports  of  Business 
Conditions  Not  Construed  as  Against  the  Law 


By  HENRY  A.  WISE 

Former  United  States  District  Attorney. 


The  prosecution  and  conviction  of 
the  members  of  various  combinations 
>9hose  activities  were  disclosed  as  a 
result  of  the  investigations  by  the 
Lockwood  Committee,  and  the  recent 
decisions  by  Judge  Carpenter  in  the 
Linseed  Oil  case  (United  States  vs. 
American  Linseed  Company  et  al.), 
and  by  the  United  States  Supreme 
Court  in  the  American  Hardwood  case 
(United  States  vs.  American  Column 
and  X-umber  Company,  et  al.),  have 
Eivon  rise  to  a  very  general  discus- 
sion .-egarding  trade  associations. 

Many  legul  opinions  h?"e  been  ex- 
pressed concerning  the  Supreme  Court 
decision;  and  there  have  been  almost 
as  many  views  expressed  as  to  the 
scope  and  effect  of  the  decision  as 
there  have  been  opinions.  There  has 
also  been  much  of  editorial  comment 
In  our  leading  newspapers  concerning 
this  decision.  Many  of  the  writers 
appear  to  have  assumed  that  the  de- 
cision was  a  general  and  sweeping 
condemnation  of  every  trade  associa- 
tion regardless  of  its  activities. 

A  literal  acceptance  of  this  view 
would  have  undoubtedly  resulted  in  a 
very  serious  upset  to  business  in  this 
country.  But  in  the  absence  of  a  clear, 
tinetiuivocal,  and  most  positive  con- 
c!«Bination  of  trade  associations  as 
such,  it  was  not  to  be  expected  that  the 
business  men  of  this  country,  most  of 
whom  are  members  of  trade  associa- 
tions, would  give  up  what  has  become 
a  necessary  adjunct  in  their  business 
merely  because  of  a  decision  which  the 
court  limited  to  the  activities  as  it 
said  "here  under  discussion." 

Accordingly  the  discussion  of  the 
effect  of  this  decision*  upon  legitimate 
trade  associations  has  continued  and 
the  climax  of  the  subject  may  be  sai^ 
to  have  been  reached  in  certain  inter- 
departmental  correspondence  between 


the   Attorney  General    of  the   United 
States  and  the  Secretary  of  Commerce. 

Hoover   Made   Inquiries 

Mr.  Hoover,  because  of  his  broaci, 
general  business  experience,  and  his 
undoubted  knowledge  of  the  value  of 
the  services  rendered  by  legitimate 
trade  associations,  and,  no  doubt,  rec- 
ognizing the  harm  to  business  gen- 
erally that  would  result  should  the 
Hardwood  decision  be  construed  as  a 
general  condemnation  of  trade  asso- 
ciations, presented  "an  informal,  inter- 
departmental inquiry''  to  the  Attorney 
General  "regarding  the  present  status 
of  the  law  relating  to  legitimate  trade 
associations  and  the  extent  that  they 
may  engage  in  legitimate  cooperative 
activities." 

In  presenting  this  inquiry,  Mr. 
Hoover  assumed  that  there  are  such 
things  as  "legitimate  trade  associa- 
tions," and  that  there  are  "legitimate 
cooperative  activities"  in  which  the 
members  of  such  associations  may  en- 
gage. That  he  was  correct  in  both  as- 
sumptions seems  to  be  beyond  ques- 
tion. 

While  the  Attorney  General,  in  his 
reply,  was  careful  to  avoid  an  un- 
equivocal commitment  of  himself  to 
the  approval  of  any  of  the  suggested 
necessary  activities  of  trade  associa- 
tions as  outlined  by  Mr.  Hoover,  yet 
the  fact  remains  that  the  Attorney 
General  did  not  attempt  to  charac- 
terize them  as  in  and  of  themselves 
violation  of  the  Anti-Trust  Laws,  or 
as  having  been  denounced  or  con- 
demned by  the  Supreme  Court  in  the 
Hardwood  decision. 

Activities  Specified 

Time  and  space  will  not  pemnit  of 
an  enumeration  of  the  "activities  on 
the  part  of  trade  associations"  which 


were  specified  by  Mr.  Hoover  in-- hta 
inquiry,  but  amonjr  them  werethB 
gathering,  compilation  and  distribution 
of  the  statistics  of  an  industry  show- 
ing production  capacity,  volume  of. 
production,  volume  of  distribution  and 
consumption,  and  stocks  on  hand; 
maintenance  of  a  standard  system  of 
cost  accounting,  standardization  .of 
product,  standardization  of  tradeterms 
and  phrases,  cooperative  advertising', 
united  effort  regarding  questions,  of 
tariff,  railroad  rates,  and  like  matters.^ 

While  not  condemning  any  of  these 
suggested  activities,  the  Attorney, Gehr 
eral  carefully  hedged  by  saying  in  ef- 
fect that  "every  case  that  came  before 
him  would  have  to  be  judged  accord 
ing  to  the  r.articular  facts,"  and  that 
if  in  the  practice  of  any  association 
"it  shall  develop  that  competition  Is 
suppressed  or  prices  are  materially 
advanced  this  department  must  treat 
such  a  pr. — .^ .  as  it  treats  any  other 
one  which  is  violative  of  the  anti- 
trust act." 

So  it  will  be  seen  that  all  of  this 
correspondence  boils  down  to  the 
simple  statement  that  every  case  must 
be  decided  upon  its  particular  facts, 
or  as  the  Supreme  Court  said  in  the 
Hardwood  case,  upon  the  facts  "here 
ur.der  consideration." 

All,  therefore,  that  can  be  gathered 
froni  this  correspondence  is  an  as- 
sumption by  Mr.  Hoover  tnat  there  are 
legitimate  trade  associations  and  leslti- 
mate  trade  association  activities,  ana 
an  implied  admission  of  the  correctness 
of  these  assumptions  by  the  Attorney 
General,  coupled  with  a  warning  that 
no  violation  of  the  law  will  be  tolerated 
merely  because  those  engaged  there!j» 
throw  about  themselves  the  cloak  of 
being  engaged  in  legitimate  trade  as- 
sociation   activities. 


20 


COOPERATIVE    COMPETITION 


The  situations  disclosed  by  the  Lock- 
wood  committee  showed  not  Illegiti- 
mate trade  associations,  nor  ti"»i!e  as- 
sociations engaged  in  illegitimate  prac- 
tices, for  there  is  no  such  thing.  The 
term  trade  association  connotes  legiti- 
mate cooperative  efforts  by  those  en- 
gaged in  trade  and  Indtistry.  When  a 
group  of  men  depart  from  this  stand- 
ard and  indulge  in  practices  denounced 
by  the  law  they  become  conspirators 
and  their  activities  are  criminal;  the 
mere  tact  that  they  avail  themselves 
of  a  legitimate  instrumentality  does 
not  alter  the  character  thereof,  nor 
does  the  fact  that  such  instrumentality 
is,  in  and  of  itself  legitimate  reduce 
in  anywise  their  guilt.  Therefore, 
these  combinations,  prosecuted  and 
convicted  as  a  result  of  the  Lockwood 
committee  disclosures,  are  not  to  be 
considered  in  the  determination  of  the 
question:  may  there  be  traiie  associa- 
tions ? 

The  Hardwood  Decision 

Nor  does  the  decision  of  the  Su- 
preme Court  in  the  Hardwood  case 
answer  this  inquiry.  In  that  case  the 
court,  after  a  very  full  statement  of 
the  facts  upon  which  it  made  its  deci- 
sion, said  that  upon  those  facts  It 
was  "convinced  .  .  .  that  the  pur- 
pose and  effect  of  the  activities  .  .  . 
liere  under  discussion,  were  to  re- 
strict competition  and  thereby  restrain 
interstate  coraro.erce  ...  by  con- 
certed action  in  curtailing  production 
and  increasing  prices." 

It  is  needless  to  cite  any  authority 
to  establish  the  fact  that  concerted 
action  to  restrict  production  and  en- 
hance prices  constitutes  a  violation  of 
the  anti-trust  laws.  Federal  and 
State.  But  the  court  did  not  base 
this  decision  upon  the  fact  that  the 
offenders  were  members  of  a  trade 
association  which  compiled  and  dis- 
tributed statistics. 

On  the  contrary,  the  court  very 
elaborately  enumerated  the  general 
scheme  of  the  association,  which  :t 
characterized  as  the  "paper  plan." 
AftL.  so  doing  it  did  not  denounce  this 


plan.  It  merely  said  that  it  "consti- 
tuted an  organization  througti  which 
agreements,  actual  or  Implied,  could 
readily  be  arrived  at  and  maintained 
if  the  members  desired  to  make  them," 
and  recognizing  that  this  was  not 
enough  to  warrant  a  finding  ot  crimi- 
nal purpose,  the  court  enumerated  a 
grerft  1. umber  of  activities  from  which 
it  concluded  that  the  members  of  the 
association  had  the  "purpose"  to  com- 
mit a  crime  which  could  be  accom- 
plished by  the  use  of  the  instru- 
n.entality  which  in  and  of  itself  the 
court  did  not  condemn. 

Of  course,  a  legitimate  trade  asso- 
ciation could  be  used  in  the  commis- 
sion of  a  crime.  So  may  a  perfectly 
clean  house  be  used  for  immoral  pur- 
poses. So  may  a  railroad  organization 
be  used  for  granting  rebates  and  con- 
cessions, or  for  violating  the  Volstead 
law,  but  if  every  Instrumentality  that 
may  be  diverted  to  an  improper  use  is 
to  be  annihilated  society  must  return 
to  the  most  primitive  stages,  and  even 
then  the  desired  end  will  not  have 
been  reached. 

Need   for  Trade  Groups 

The  need  for  trade  associations  is 
demonstrated  in  the  fact  that  there  is 
one  in  practically  every  branch  of  in- 
dustry to-day.  To  answer  this  state- 
ment with  the  assertion  that  there  is 
a  criminal  purpose  back  of  every  such 
association  is  to  assert  that  we  are  a 
nation  ot  criminals.  Accordingly,  the 
absurdity  of  the  answer  Is  manifest. 

The  gi-owth  and  development  of 
these  associations  and  the  necessity 
therefor  are  the  result  of  conditions. 
Modern  business  is  so  great  in  volume 
and  so  complex  in  character  that  it  is 
impossible  for  the  Individual  manu- 
facturer to  inform  himself  of  all  of 
the  necessary  facts  to  enable  hii.i  to 
conduct  his  business  intelligently.  His 
markets  are  at  great  distances,  his 
competitors  are  numerous.  He  must 
know  the  volume  of  supply  and  of  de- 
mand. Without  statistics  he  is  at 
an  absolute  loss  to  know  how  to  con- 
duct  his   business.       Without   knowl- 


edge ot  who  are  his  competitors  and 
as  to  the  character  of  such  competi- 
tion he  is  at  the  mercy  of  the  buyer. 
But  one  result  can  follow,  and  that  is 
failure. 

As  said  by  Judge  Carpenter  in  his 
opinion  in  the  Linseed  case:  "In 
order  to  obtain  efficiency  in  business, 
as  well  as  in  any  other  human  activ- 
ity, it  is  necessary  to  have  reliable. 
Immediate,  and  adequate  records.  With 
the  progress  that  has  been  made  in 
the  last  centuiy,  it  is  not  to  be  ex- 
pected that  business  alone  will  stand 
still." 

It  Is  not  to  be  believed  that  oi-r 
lawmakers  have  ordained  tha;  ■  ■ 
business  is  to  be  conducted  by  11,.^ 
Knowledge  of  the  essential  facia  .a 
our  business  Is  a  prerequisite  to  suc- 
cess. 

In  creating  these  instrumentalities 
those  engaged  therein  are  obeying  the 
admonitions  contained  in  the  following 
Scriptural  advice: 

Get  wladam,  gM  understaniiing ; 

Forget  not,  neither  decline  from  the  wordi 

of  my  mouth. 
Forsake  her  not,  and  ahe  will  punrue  thee ; 
I«Te  her  and  she  will  l^eep  thee; 
Wisdom   is   the  principal   thing;    therefore 

get  wisdom."     4  ProT.  5,  6,  7. 

This  knowledge  can  be  obtained 
through  cooperation  through  the 
medium  of  trade  associations.  That 
such  knowledge  may  be  availed  of  by 
unscrupulous  men  does  not  justify  the 
denial  of  the  right  thereto  to  those 
who  are  engaged  in  honest  effort. 

Without  A  ^sdom  our  industries  must 
fail.  A  careful  study  of  the  Hardwood 
decision  will  not  disclose  any  ban  upon 
the  pursuit  of  wisdom. 

While  Justice  is  portrayed  as  being 
blindfolded,  it  is  hardly  to  be  believed 
that  she  will  demand  of  the  captains 
ot  our  Industry  that  they  shall  be 
similarly  handicapped  in  the  conduct 
of  their  business. 

Respect  for  the  wisdom  of  our  courts 
mipels  us  to  the  conclusion  that  they 
will    not   insist   upon   the  business   of 

I  our   country   being   conducted   in   tbt 

I  paths  of  utter  darkness. 


CO-OPERATIVE    COMPETITION 


21 


March  2j,  ig32 


EUROPE     REGULATING     TRADE 
ASSOCIATIONS  FOR  PUBLIC 

BENEFIT 


Against  Price  Fixing — Drastic  Laws  Being  Enacted  to  Curb  Profiteer- 
ing Combinations  —  Public  Welfare  Requires  Government 
Supervision  of  Trade  Groups 


The  rapid  growth  of  trade  asso- 
ciations is  one  of  the  outstanding  fea- 
tures of  present-day  commerce.  In 
this  world-wide  movement  of  commer- 
cial cooperation  and  organization,  tha 
United  States  leads  so  far  as  size, 
number,  and  financial  resources  are 
concerned.  In  countries  like  Germany, 
Belgium,  and  France,  organized  busi- 
ness has  all  the  advantages  of  long 
years  of  experience  and  mature  de- 
velopment. 

In  the  states  comprising  the  British 
Kmpire  the  movement  is  more  recent, 
but  at  the  same  time  characterized 
by  an  exceptionaf  degree  of  activity 
and  direction.  In  England  alone  there 
are  considerably  more  than  five  hun- 
dred trade  associations,  and  accord- 
ing to  an  ofHcial  statement  by  the 
Board  of  Trade  there  is  an  Increasing 
tendency  in  every  important  branch 
of  industry  to  the  formation  of  trade 
associations  having  for  their  purpose 
the  restriction  of  competition  and  the 
control  of  prices. 
The  iron   and  steel  Industry   is   one 

«f  the  best  organized  branches  of  Brit- 
ish   business.       There    are    thirty-five 

associations   of   manufacturers   of   pig 

iron,    rolled    products,    castings,    forg- 

ings,  bar  iron,  and  miscellaneous  iron 

and  steel  products. 

The  building  industry  is  equally  well 

organized.    An  analysis  of  the  costs  of 

materials  entering  into  the  construc- 

Uon  of  a  number  of  groups  of  cottages 

(ihowed,  according  to  official  data,  that 

on  an   average   42.07   per  cent  of  the 

triaterialB  used  were  uncontrolled,  32.25 

per  cent  partially  controlled,  and  24. 6S 

per  cent  controlled  by  price  combines 

of      manufacturers      and      merchants,  i 

Among   the    principal    building    mate- M  376  any  combination  for  imposing  re- 


By  WILIAM  NOTZ 

Hals  controlled  by  associations  deter- 
mining prices  and  output  are  tiles, 
lead  pipe,  wrought  iron  tubes,  cement, 
wall  paper,  glass,  boilers,  and  iron 
eastings. 

Many  in  Associations 

Some  of  the  most  representative 
trade  associations  in  the  United  King- 
dom are  found  in  the  textile,  brass, 
copper,  tin,  chemical,  electrical,  paint, 
and  glass  industries. 

These  associations  differ  widely  In 
character  and  functions.  The  various 
types  range  all  the  way  from  morj 
or  IfBs  informal  temporary  and  local 
arrangements  or  understandings  re- 
garding labor  questions  or  the  safe- 
guarding and  promoting  of  the  gen- 
eral interests  of  members,  through 
the  whole  category  of  price  agree- 
ments and  schemes  for  control  of 
output,  up  to  the  highly  organized 
combines  which  operate  through  a 
central  agency  and  are  registered  as 
limited  liability  companies  under  the 
British    Companies   Act. 

A  large  number  of  these  acsocia- 
tions  are  concerned  in  one  form  or 
another  with  the  regulation  of  price.s. 
Other  activities  Involve  the  collection 
and  distribution  of  statistical  in-flor- 
matlon,  scientific  and  technical  rts- 
csearch,  '  ■  'ardization  and  intt.r- 
change  oi  ^  .!  data,  collective  adver- 
tising, joint  purcha.sing  of  supplie?, 
and  similar  group  activities  for  the 
promotion  of  the  common  interest. 

Thf;  legal  statu.^  of  trade  associations 
under  British  law  is  rather  unique. 
They  are  precluded  from  registeiing: 
unde;-  the  Companies'  Vets  or  the 
Partnership  Acts,  but  they  may  regis- 
ter a.s  trade  unions,  and  the  majority 
do  so.     Under  the  Trade  Union  Act  of 


slrictive  conditions  on  trade  or  busl- 
ne.ss  is  a  trSde  union.  Operation  un- 
der that  act  carries  with  it  certain  dis- 
advantages. For  example,  agreements 
between  members  of  trade  unions  as 
to  conditions  on  which  uny  member 
shall,  or  shall  not.  sell  his  goods,  trans- 
act business,  employ  or  be  employed, 
cannot  be  enforced  in  a  court  of  law. 
Methods  have  been  found  recently 
of  overcoming  these  d  rncultiea  by 
forming  limited  liability  companies 
,Tnd  registering  the  same  under  the 
Companies  Act.  Numerous  trade  as- 
sociations are  not  registered  at  all,  and 
.some  are  believed  to  be  purpo«ely  car- 
ried on  as  secretly  as  possible. 

As  Seen  by  the  Public 

The  public  generally  and  the  British 
Government  authorities  have  followed 
the  whole  movement  with  considerable 
interest.  Generally  speaking,  the  ef- 
forts to  eliminate  wasteful  methods 
and  to  strengthen  the  foundations  of 
many  trades  by  collective  methods 
have  met  with  public  approval.  In  a 
number  of  instances,  however,  alarm 
has  been  occasioned  by  acts  of  certain 
associations  which  were  believed  to  be 
pursuing  purely  profit-making  ends 
detrimental  to  the  public  Interest. 

A  special  committee  was  appointed 
by  the  Minister  of  Reconstruction  to 
inquire  into  the  situation  and  report 
what  action  might  be  deemed  neces- 
sary to  safeguard  the  public  Interest. 
The  report  of  thir.  ccma^ittee,  r-^^a  '» 
Parhament  in  1919,  calls  attention  "cj 
numerouy  beneficial  effects  of  trade 
associations.  In  their  favor  it  is 
stated  that  they  have  made  for  more 
economic  production,  for  an  improved 
quality  and  variety  of  output,  and  for 
a  very  helpful  interchange  of  technl- 
cal  knowledge 
On   the   other   hand,    the   committee 


23 


CO-OPERATIVE    COMPETITION 


cited  instances  of  exorbitant  and  ex- 
cessive prices  fixed  by  certain  associa- 
tions. Moreover,  it  quoted  autliorities 
to  the  effect  that  the  consumer  would 
no  doubt  be  at  a  disadvantage  In 
dealing  with  certain  combinations  of 
producers. 

The  committee  also  noted  a  great 
deal  of  distrust  and  suspicion  on  the 
part  of  the  public  with  regard  to  the 
activities  of  associations  and  combina- 
tions and  pointed  out  that  the  effect  of 
BUch  mistrust,  whether  well-founded 
or  not,  might  be  equally  hurtful  to 
the  political  and  social  stability  of  the 
state. 

As  a  remedy  the  committee  recom- 
mended: 

(1)  That  an  official  tribunal  of  in- 
vestigation be  established  for  pro- 
viding the  fullest  information  as  to 
the  activities  of  trade  associations  and 
making  the  facts  available  to  the 
public. 

(2)  The  establishing  of  further 
machinery  for  dealing  promptly  and 
effectively  with  such  abuses  as  the 
tribunal  might  discover. 

Under  the  profiteering  acts  of  1919 
and  1920  about  fifty  industries  and  I 
trades  were  investigated  by  official 
committees  and  reports  presented  to 
Parliament,  in  which  the  activities  of 
trade  associations  were  emphasized. 
In  a  report  on  the  soap  industry  the 
committee  recommended  that  Parlia- 
ment should  authorize  the  Board  of 
Trade  to  exercise  surveillance  over 
the  existence,  development  and  activi- 
ties of  trade  combinations. 

The  report  on  flooring  and  roofing 
tiles  recommended  that  wh>re  associa. 
tions  are  controlling  60  per  cent  of 
more  of  an  industry  steps  should  be 
taken  to  safeguard  the  interests  of  the 
community  and  such  associations 
should  be  required  to  publish  state- 
ments, including  among  data  the 
average  profits  and  the  average  ratio 
of  turnover  to  capital.  Recently  the 
Board  of  Trade  announced  that  a  Gov- 
ernment bin  on  the  subject  would  be 
submitted  to  Parliament  at  an  early 


Several  of  the  oversea  states  of 
the  British  Empire  have  already  en- 
acted legislation  such  as  is  contem- 
plated by  the  mother  country.  The 
most  recent  is  the  Profiteering  Act, 
1920,  of  the  Union  of  South  Africa, 
by  which  a  board  of  control  is  estab- 
lished with  wide  powers  of  investiga- 
tion .and  regulation  of  combinations, 
agreempnts,  and  arrangements  having 
for  t!  eir  purpose  or  effect  the  regu- 
lation of  the  price  or  output  of  com- 
modities or  services  produced  or  ren- 
dered in  the  Union  or  imported  into 
the  same.  The  board  is  empowered 
to  assign  certain  of  its  powers  to  local 
committees  and  has  been  given  power 
to  prosecute  offenders  under  the  act. 
A  similar  agency  has  been  estab- 
lished in  New  Zealand  under  the 
Board  of  Trade  Act,  1919,  which  gives 
permanency  to  a  previous  war-time 
measure.  This  board  is  empowered 
to  make  and  publish  investigations. 
It  may  also  make  regulations  with  the 
approval  of  Parliament  for  the  pre- 
vention or  suppression  of  methods  of 
competition  in  trading  or  business 
which  are  considered  to  be  unfair  or 
prejudicial  to  the  industries  of  New 
Zealand  or  to  the  public  welfare. 

Probably  the  most  drastic  legislation 
is  found  in  the  Commonwealth  of  Aus- 
tralia. Some  of  it  goes  back  to  pre- 
war times,  like  the  Australian  Indus- 
tries Preservation  Act,  1906-1910. 

Numerous  price  regulation  laws 
were  enacted  during  the  war.  More 
recently  renewed  efforts  have  been 
made  to  regulate  prices  by  such  means 
as  state  competition,  state  purchase 
and  distribution  of  supplies  in  the 
interests  of  consumers,  regulation  of 
external  trade,  and  fixing  maximum 
prices.  The  new  Tariff  Board  has 
been  given  certain  powers  along  this 
line. 

As  indicative  of  the  universal  char- 
acter of  the  new  orientation  of  Gov- 
ernment policy  towards  trade  organi- 
zations, mention  should  be  made  of 
what  is  one  of  the  most  interesting 
new  developments  noted  thus  fai-.  On 
July  7,  1921,  the  German  Reichstag 
(passed     a     resolution     directing     the 


Ministry  of  .Economics  to  establish  a 
cartel  advisory  board.  According  to 
a  statement  by  the  Minister  in  charge, 
the  functions  of  this  board  shall  be: 

(1)  To  prevent  a  one-sided  develop- 
ment of  profit-seeking  policies  on  the 
part  of  cartels. 

(2)  To  encourage  and  promote  cartel 
activities  which  are  beneficial  to  the 
public  welfare. 

(3)  To  stimulate  production  and  in- 
crease output. 

(4)  To  formulate  common  principles 
for  guidance  in  individual  cases,  ac- 
cording to  which  the  limits  of  what  is 
permissible  and  expedient  may  be  de- 
termined in  an  objective  way. 

An  analysis  of  the  most  typical 
phases  of  the  trade  association  move- 
ment throughout  the  world  at  the 
present  time  brings  out  a  number  of 
significant  tacts.  One  of  these  con- 
sists in  the  increasing  importance 
which  price-fixing  schemes  have  as- 
sumed in  the  economy  of  trade  a-sso- 
clations.  It  is  this  factor  primarily 
which  has  given  rise  to  widespread 
distrust  and  alarm  on  the  part  of  the 
public  generally  throughout  the  Brit- 
ish Empire,  the  Scandinavian  coun- 
tries, in  Germany,  and  in  some  of  the 
Latin-American   states. 

A  number  of  very  drastic  statutory 
measures  have  been  enacted  cjong 
anti-profiteering  lines,  and  further 
regulatory  laws  are  under  considera- 
tion. The  consensus  of  opinion  ap- 
pears to  be  that  the  public  welfare 
requires  Government  jurisdiction  and 
surveillance  of  trade  associations  and 
combinations  which  engage  in  price 
fixing  and  adequate  protection  of  the 
consumer. 

On  the  other  hand,  we  find  what  ap- 
pears to  be  sincere  and  universal 
popular  approval  of  cooperative  efforts 
of  organized  business  which  direct 
themselves  towards  the  elimination  of 
wasteful  methods  and  the  upbuilding 
of  efficient  and  improved  methods  of 
production  and  distribution  advan- 
tageous alike  to  the  manufacturer  and 
the  consuming  public  and  in  harmony 
1  with  the  public  good. 


CO-OPERATIVE   COMPETITION 


23 


HOW 


March  21,  ig22 

AUTOMOBILE     MEN 
BANDED  TOGETHER 


ARE 


Co-operate  in  Use  of  Development  Patents  —  Cross-Licensing  Pl^n 
Gives  Devices  to  All  Members  of  Group — Advantages  of 
Trade  Associations  Shown  in  Their  Chamber  of 
Commerce  Agreement 


By  ALFRED  REEVES 
General  Manager,  National  Automobile  Chamber  of  Commerce. 


Of  all  the  cooperative  actions  by  com- 
petitors in  an  Industry  having  for  its 
purpose  the  maltingr  of  a  better  product 
to  be  sold  at  the  lowest  possible  price  to 
the  public,  the  Cross-Licensing  Pat- 
ents Agreement  of  the  National  Auto- 
tncbile  Chamber  of  Commerce  is  con- 
sidered one  of  the  most  interesting. 

Under  this  plan  more  than  125  auto- 
mobile manufacturers  interchange 
patent  rights  without  the  payment  of 
money  consideration;  all  with  a  view 
of  making  the  modern  American  mo- 
tor car  a  composite  of  the  best  that 
the  engineering  brains  of  the  industry 
has  produced. 

More  than  seven  years  ago,  follow- 
ing litigation  in  the  Selden  patent 
suit  and  some  other  suits  on  axles,  the 
manufacturers  came  to  the  conclusion 
that  long  years  of  litigation  were 
ahead  unless  they  were  able  to  devise 
some  plan  by  which  there  could  be 
an  exchange  of  patent  rights.  More- 
over, if  some  cars  were  bad,  the  pub- 
lic would  laclc  faith  in  the  motor 
vehicle  and  all  manufacturers  would 
suffer. 

The  problem  was  to  head  the  power 
of  all  the  engineers  and  production 
men  towards  the  betterment  of  this" 
new  means  of  transportation.  Wheth- 
er thfs  problem  to  some  degree  has 
been  solved  is  best  shown  by  the 
10,000,000  cars  now  running  on  our 
highways. 

The  manufacturers  felt  that  the  in- 


dustry must  be  prosperous  if  any 
individual  concern  was  prosperous,  and 
that  the  product  must  be  right  without 
discouraging  individuality  in  design 
and  other  features  that  would  make 
for  sales  advantages  by  different  com- 
panies. 

Development   Patents 

The  patents  included  are  what  are 
known-  as  "development  patents"; 
such  as  moving  a  nut  from  one  place 
to  another,  a  slight  change  in  the 
oiling  system,  setting  of  bearings  at 
different  angles,  left-hand  drive  and 
centre  control,  certain  changes  in  igni- 
tion systems,  oil  cups,  fender  mount- 
ings, radiator  castings,  carburetors, 
spring  hangers,  and  other  parts  of 
cars  important  in  themselves,  but  none 
of  such  an  outstanding  cnaracter  that 
their  use  by  other  manufacturers 
would  harm  the  originator. 

All  these  come  under  what  i.s  known 
as  "Class  A"  patents,  of  \yhich  there 
are  now  more  than  600  in  the  Cross- 
Licensing  Agreement,  being  the  major 
portion  of  the  patents  affecting  auto- 
mobiles, on  which,  incidentally,  tens 
of  thousands  have  been  Issued  from 
the  Washington  Patent  Offlee.  i 

The  agreement  covers  patents 
limited  largely  to  chassis  units  and 
parts.  It  does  not  include  devices 
strictly  applicable  to  trucks,  fire  ap- 
paratus, tractors,  and  similar  articles 
that  are  still  undergoing  changes  in 
construction. 

It   does   not   affect   design    patent*, 


nor  did  it  affect  what  are  known  -as 
"Class  B"  patents,  which  are  pateijts 
of  a  radical  character,  far  greater  in 
importance  than  so-called  "develop- 
ment patents,"  and  which  have  been 
developed  in  the  company's  organiza- 
tion. Such  patents  are  exclusiTely 
controlled  by  the  manufacturing 
member. 

Seven  years  have  gone ,  by  under 
this  Cross-Licensing  Agreement,  with 
the  industry  continuously  prosperous. 
The  agreement  has  three  years  more 
to  run. 

For  Mutual  Benefit 

The  great  broad  feature  of  thto 
whole  plan  is  the  fact  that  any  auto- 
mobile company  that  has  been  in  pro- 
duction for  a  year  or  more,  which  has 
a  proper  standing  in  the  trade,  and 
which  conducts  its  business  in  legiti- 
mate fashion,  is  made  welcome  to  the 
Chamber  and  given  the  rights  under 
all  the  patents  of  the  other  members 
who  are  parties  to  the  agreement.  In 
return  it  contributes  rights  under  sucn 
patents  as  it  has  and  such  patents 
as  it  takes  out  prior  to  1925. 

There  is  always  encouragement  for 
invention,  because  the  patent  which  a 
member  takes  out  is  his  own  property, 
and  while  hiis  fellow  members  ma; 
use  it,  non-members  cannot  u.sq  It 
without  arranging  with  the  owner, 
nor  can  manufacturers  of  tractors, 
stationary  engines,  and  the  like  usa 
it  without  such  consent., 


2i 


CO-OPERATIVE   COMPETITION 


There  is  incentive  to  invent,  be- 
cause the  company  taking  out  a  pat- 
ent generally  has  at  least  a  year's 
start  On  other  members  and  because 
being  the  first  to  do  anything  carries 
a  leadership  that  brings  reward.  More- 
over, the  companies  must  take  out 
patents  to  protect  themselves  against 
their  being  taken  out  by  outsiders. 

If  it  was  a  case  of  one  company 
putting  in  a  dozen  patents  as  ag^ainst 
another  company  that  had  only  one 
or  two  patents,  the  agreement  could 
not  have  been  concluded,  but  it  was 
a  case  of  a  company  putting  In  its 
five  or  ten  patents  and  receiving?  in 
return  about  600  patents  owned  by  125 
manufacturers. 

As  to  future  patents,  a  company 
turning  In  anything  it  develops  re- 
ceives everything  that  is  developed  by 


125  companies. 

Design  patents  are  not  included, 
they  being  considered  the  trademark 
of  the  company  product. 

The  whole  thought  has  been  to 
eliminate  patent  litigation;  to  cement 
the  industry  in  a  cobperatlve  spirit;  to 
insure  the  production  of  better  cars 
at  lower  costs,  and  to  make  the  busi- 
ness not  one  of  patents  only  but  one 
of  making  and  selling  meritorious 
motor  vehicles. 

By  making  provision  to  exclude  a 
radical  patent  developed  within  the 
organization  of  a  member,  it  provides 
ample  encouragement  for  the  continu- 
ation of  research  work  by  each  com- 
pany. 

The  industry  has  long  since  proved 
tor  Itself  that  patent  litigation  seldom 
pays  either  side;   that  it  disturbs  thu 


industry  and,  certainly,  in  connection 
with  minor  patents,  even  when  sus- 
tained, their  advantage  is  of  doubt- 
ful value. 

Charles  Clifton,  head  of  the  Fierce- 
Arrow  Motor  Car  Company  and  Presi- 
dent of  the  National  Automobile 
Chamber  of  Commerce,  has  been  a 
leading  proponent  of  codperation  in  in- 
dustry for  the  past  fifteen  years,  and 
there  Is  no  greater  evidence  of  his  wide 
Influence  than  the  Cross-Ltcenslng 
Agreement. 

Most  of  the  excellent  feature^  of 
this  broad  piece  of  cooperation  are  the 
work  of  C.  C.  Hanch,  vice-president  of 
the  Lexington  Motor  Company,  whose 
able  leadership  of  N.  A.  C.  C.  patents 
committee  resulted  In  motor  vehicle 
builders  being  convinced  of  the  advan- 
tages of  the  plan. 


CO-OPERATIVE   COMPETITION 


^. 


March  28,  1922 


UNIFORM  ACCOUNTING  SYSTEMS 
URGED  FOR  TRADE  ASSOCIATIONS 

Prevent  Waste  and  Guard  Against  Losses  in  Business — Suggeste'dsas 
Promising-  Field  for  Activities  of  All  Trade  Groups   .^^i^ 


By  PROF.  MELVIN  T.  COPELAND 

Director  of  the  Bureau  of  Business  Kesearch,  Harvard  iUniversity, 


The  development  oi  the  trade  asso- 
ciations during  the  last  ten  years  prob- 
ably will  be  one  of  the  outstanding 
features  of  this  period  when  the  time 
comes  to  view  it  from  a  historical 
standpoint.  Although  the  growth  of 
these  institutions  has  in  some  cases 
been  accompanied  by  abuses,  and  in 
other  cases  by  the  pursuance  of  well 
intentSoned  methods  that  the  courts 
have  declared  illegal,  nevertheless, 
tht«e  trade  organizations  are  exerting 
a  stronger  and  stronger  beneficial  In- 
fluence upon  the  business  life  of  the 
country. 

These  organizations  are  a  real  con- 
structive factor  in  the  constant  im- 
provement in  business  methods  for 
which  there  is  such  urgent  and  con- 
stant demand.  They  are  leadin?;  to 
the  acceptance  of  higher  standards  of 
business  ethics.  They  are  aiding  in 
the  preservation  of  individual  initia- 
tive and  in  the  maintenance  of  indi- 
vidual businesses  that  are  economical 
as  well  as  fully  independent  in  opera- 
tion and  control. 

These  results  are  being  accom- 
plished successfully,  not  through 
coercive  measures  but  by  educational 
influence,  and  one  of  the  particularly 
significant  features  of  the  educational 
development  of  numerous  trade  asso- 
ciations is  the  introduction  of  uni- 
form accounting  systems.  This  ap- 
pears to  be  an  especially  promising 
field  lor  the  future  development  of 
the  activities  of  these  associations. 

Typothelae  Led  the  Way 

One  of  the  first  trade  associations 
to  undertake  an  educational  pro- 
gramme for  better  accounting  was  the 
United  Typothetae  of  America,  the  na- 
tional association  of  master  printers. 
About   fifteen   years   ago  the   United 


Typothetse  formulated  a  standard  cost, 
system  and  undertook  to  secure  its 
general  adoption  by  its  members.  A 
vigorous  campaign  has  been  waged 
since  that  date  for  the  purpose  of  se- 
curing its  wider  and  wider  use.  Ac- 
cording to  a  report  that  was  pub- 
lished in  1920,  for  example,  it  was 
stated  that  during  the  preceding  year 
the  accounting  force  of  the  associa- 
tion spent  722  weeks  in  the  field  and 
made  over  1,000  installations  of  the 
cost  system  in  plants  in  thirty-three 
States. 

Altogether  several  thousand  printers 
are  now  using  this  standard  system. 
The  system  has  been  amplified  from 
time  to  time  and  now  includes  a 
standard  accounting  system,  which  is 
built  around  a  standard  cost  finding 
system  with  complete  sets  of  forms 
for  cost  finding  and  instructions  for 
standard  practice. 

Many  of  the  members  of  the  asso- 
ciation report  to  its  department  of  re- 
search their  individual  annual  records 
and  in  some  cases  make  monthly  re- 
ports of  actual  costs.  These  records 
are  combined  into  composite  state- 
ments showing  significant  ratios  of  ex- 
pense ani  furnish  the  basis  for  a 
ptandard  guide  which  provides  de- 
tailed instructions  for  estimating 
prices  on  the  brA  of  past  experience. 

The  controlIoTf!^  congress  of  the 
■National  Retail  Dry  Goods  Associa- 
tion, to  take  another  example,  during 
the  last  two  years,  through  its 
standardization  committee,  has  worked 
out  a  detailed,  thoroughgoing  classifi- 
cation of  accounts  for  department 
stores.  The  work  of  the  last  two  years 
was  a  further  development  of  another 
classification  that  this  association  pre 
pared  in  1917. 

The  National  Association  of  Electri- 
cal Contractors  and  Dealers,  the  Na- 
tional Paper  Box  Manufacturers'  As- 
sociation,   and    several    other    similar 


trade  organlzatlon9*1iave'"'worke*>«»al 
uniform  accounting «ystem9-  The/Bu* 
reau  of  Business  Research  ofHarrard 
University  has  Issued  standard  ao« 
counting  systems  In  coSperatioaJwitll 
the  National  Wholesale  GroceraftAa* 
sociation,  the  American  Natlona^'Re- 
tail  Jewellers*  Association,  and  thaiiMaM 
tional  Shoe  Retailers'  Association, /as 
well  as  Independently  for  several  othe» 
trades. 

Have  EducationaMnfluenco 

These  standard  accounting"eysteiiu| 
differ  in  detail  and  scope,  but  all  ot 
them  are  exerting  a  greater  and.great- 
er  educational  Influence  ia  thertradea 
for  which  they  have  beeu  prepared. 
In  the  case  of  progressive  firms  that 
previously  have  had  good  accounting 
systems,  the  standard  systems  fre- 
quently result  only  in  minor  improve* 
ments  in  practice;  but  among  those 
firms  that  previously  have  not  had  an 
accurate  knowledge  of  their  costs  and 
operating  expenses,  the  standard  sys- 
tems are  revealing  facts  that  are  es- 
sential for  sound  business  manage- 
ment. It  has  been  the  common  experi- 
ence in  every  trade  in  which  work 
of  this  sort  has  been  undertaken  to 
find  numerous  firms,  frequently  a  sub- 
stantial portion  of  the  entire  number 
in  the  industry,  which  were  operatinir 
without  knowing  accurately  whether 
they  were  making  money  or  losing  it. 

Of  course,  not  all  the  firms  in  any 
one  of  these  trades  have  yet  adopted 
the  accounting  system  in  its  entirety, 
but  oftentimes  some  of  those  that  hav« 
been  slow  to  put  in  the  complete  sys- 
tem have  adopted  some  features  of 
the  standard  plan,  and  thus  are  beinjr 
educated  gradually  to  a  better  knowl- 
edge of  their  business.  In  ordinary 
times  the  most  serious  losses  in  busi- 
ness are  those  that  are  unknown. 

These  standard  accounting  systems 
are  resulting  in  uncovering  nany 
losses  which  previously  had  been  cver» 


es 


COOPERATIVE   COMPETITION 


looked  !n  Urge  numbers  of  plants  an<J 
•tores.  Usually  It  is  only  necessary  to 
call  these  losses  definitely  to  the  at- 
tention «t  the  proprietor  of  the  busi- 
ness to  have  steps  taken  to  remedy 
them.  The  result  is  the  elimination 
of  some  of  the  unnecessary  wastes  in 
business,  and  eventually  this  vl:l  bene- 
fit not  only  the  business  men  them- 
selves,  but  also  the  public  at  large, 
because  in  one  way  or  another  waste- 
*tU  methods  inevitably  add  to  the 
burden  that  the  public  must  carry  in 
the  form  of  higher  prices.  It  is  to  the 
general  Interest  of  the  public,  there- 
fore, as  well  as  to  the  Interest  of  busi- 
ness men,  that  intelligent  methods  be 
used  for  determiningr  costs  and  finding 
out  what  other  facts  relate  to  business 
operations. 

The  use  of  uniform  accounting 
methods  does  not  interfere  with  com- 
petition; it  tends  to  make  competition 
more  intelligent.  Prom  every  stand- 
point unintelligent  competition,  due  to 
a  lack  mt  knowledge  of  costs,  ia  the 
most  dangerous  and  undesirable  sort 
of  competition. 

The  lack  of  knowledge  of  costs,  to 
ke  sure,  may  occasionally  result  in  the 
Ignorant  sale  of  merchandise  at  a  loss, 
to  the  temporary  advantage  of  some 
buyefs.  Such  a  temporary  gain,  how- 
ever. Is  parasitical  in  Its  nature — a 
benefit  obtained  by  taking  advantage 
of  the  ignorance  of  others.  Such  a 
gain,  furthermore,  is  far  more  than 
offset  by  the  burdens  in  the  form  of 
higher  prices  that  this  ignorance  of 
costs  ultimately  imposes.  These  bur- 
dens arise  from  lack  of  economy  in 
operation,  increases  in  credit  risks  and 
losses,  and  various  uneconomical  prac- 
tices which  are  not  corrected  because 
unknown. 

Safeguarding  Small   Firms 

In  order  to  preserve  real  competi- 
tion in  business,  one  of  the  most  vital 
factors  in  the  continued  prosperity  of 
American  industry,  it  Is  essential  that 
the  opportunities  for  the  smaller  firms 
be  safeguarded.  The  activity  of  trade 
associations  in  promoting  the  use  of 
uniform  accounting  methods  is  a  par- 
ticularly effective  means  of  aiding  the 
•mailer  firms.  It  places  at  their  dis- 
posal methods  and  experience  which 
the  average  small  firm  could  not,  or 
would  not,  secure  on  a.  commercial 
basis.  It  places  the  smaller  firms  in 
a  better  position  for  effective,  intelli- 
ftnt  competition.  , 


There  probably  have  been  occasional 
instances  in  which  members  of  trade 
associations  have  hoped  that  the  use 
of  the  standard  accounting  systems 
might  be  manipulated  in  some  way  to 
effect  a  control  of  prices.  Such  at- 
tempts clearly  would  be  contrary  to 
general  public  policy  and  illegal.  Any 
such  manipulations  or  coercive  meas- 
ures are  neither  inherent  in  the  plan 
of  uniform  accounting  nor  are  they 
consistent  with  the  fundamental  edu- 
cational principles  upon  which  such 
standard  accounting  programmes  can 
best  be  carried  out. 

The  standard  accounting  system 
Is  not  a  price  control  agency,  but 
rather  a  means  of  bringing  clearly 
to  light  opportiinities  for  economies  in 
operation.  In  trade  association  meet- 
ings, for  example,  means  of  securing 
economy  in  operation  ordinarily  come 
up  for  discussion.  Without  standard 
accounting  there  are  many  points  on 
which  intelligent  discussion  cannot  be 
carried  on. 

Several  years  ago,  for  instance,  at 
a  meeting  of  commissary  managers  a 
two-hour  discussion  took  place  re- 
garding the  cost  of  doing  business. 
The  president  of  the  association  stated 
that  his  cost  of  doing  business  was 
8.1  per  cent  of  his  sales.  The  chair- 
man of  the  cost  committee  stated 
that  his  cost  was  15.6  per  cent  and  he 
doubted  whether  any  commis.sary 
could  be  operated  at  less  than  15  per 
cent  of  sales. 

Different  Viewpoints 

After  the  meeting  I  asked  the  presi- 
dent what  he  included  in  his  cost  of 
doing  business.  He  replied:  "Oh,  that 
is  my  payroll."'  The  entire  discus- 
sion had  been  wasted  because  these 
men  were  not  talking  the  same  lan- 
guage. The  exchange  of  information 
regarding  better  methods  of  manage- 
ment obviously  is  facilitated  by  hav- 
ing all  costs  figured  in  accordance 
with  a  uniform  plan. 

As  was  stated  above,  the  United 
Typothetse  has  collected  operating  fig- 
ures to  show  the  experience  of  its 
members.  The  Harvard  Bureau  of 
Business  Research  during  the  last  ten 
years  has  been  actively  engaged  in 
collecting  figures  on  operating  ex- 
penses, and  the  uniform  accounting 
systems  that  •  it  •  has  prepared  for 
various  retail  and  wholesale  trades 
have  all  been   Intended  primarily  as 


the  basis  tor  obtaining  reliable  statis- 
tics on  operating  expenses. 

As  the  standard  accounting  systems 
have  become  more  and  more  widely 
used,  the  value  of  the  results  has,  of 
course,  increased.  The  reports  from 
individual  firms  have  been  tabulated 
and  summarized,  and  from  them 
standard  figures  have  been  worked  out 
annually  to  furnish  a  guide  to  the 
merchants  in  these  respective  trades 
for  judging  the  economy  with  which 
they  are  operating  their  businesses. 

in  the  wholesale  grocery  trade,  for 
example,  the  Harvard  Bureau  received 
reports  for  the  year  1920  from  322 
firms  in  forty-five  States,  with  an  ag- 
gregate  volume  of  business  amounting 
to  $643,949,000.  The  tabulation  of 
their  figures  showed  that  the  common 
figure  for  total  expense  was  9  per 
cent  of  net  sales,  for  total  sales  force 
expense  2.1  per  cent,  for  losses  from 
bad  debts,  0.2  per  cent,  and  so  on  for 
numerous  other  items.  Any  whole- 
sale grocer  can  put  his  own  figures 
beside  such  a  table  and  readily  learn 
where  his  expenses  are  running  above 
the  average  and  where  economies  are 
to  be  sought. 

Such  utilization  of  uniform  account. 
ing  systems  probably  will  be  extended 
much  further  by  trade  associations  In 
the  future.  The  collection  of  the  fig- 
ures in  accordance  with  the  standard 
form  in  itself  stimulates  Interest  in 
the  uniform  accounting  system,  and 
the  advantages  of  using  the  system 
are  multiplied  manifold  by  having  a 
standard  guide  with  which  to  com- 
pare results. 

The  collection  of  these  data  over  a 
period  of  years,  furthermore,  will 
make  a  particularly  valuable  contribu- 
tion to  trade  history.  It  will  show 
how  costs  have  changed  with  the  ups 
and  downs  of  business  conditions  and 
what  the  effects  of  crises  are  upon 
the  various  items  of  expense.  Until 
recently,  at  least,  business  men  have 
had  no  reliable  trade  histories  of  this 
sort  for  guidance,  but  the  need  ia 
widely  felt. 

Although  uniform  accounting  sys- 
tems and  the  collection  of  standard 
reports  on  operating  costs  will  not  by 
any  means  cure  all  the  evils  in  any 
trade,  nevertheless  they  are  an  educa- 
tional influence  of  such  potentiality 
that  trade  associations  should  be  en- 
couraged to  put  forth  more  and  more 
jffort  in  this  direction. 


K^ 


CO-OPERATIVE   COMPETITION 


2T 


March  28,  1922 


WANTS    FEDERAL    REGULATION 
OF  TRADE  GROUPS 


Action  by  Congress  First  Step  Advised — Believes  Hoover  Should  Call 
Off  Convention  Pending  Legislation — Trade  Commission  Act 
Suggested — Would  Define  Scope  of  Trade  Association 
'  Activities — A  Letter  From  Samuel  Untermyer 


Samuel  Untermyer,  counsel  to  the 
Loclfwood  committee,  has  sent  the  fol- 
lowing letter  on  trade  asFOciations  and 
their  activities  to  the  Evening  Post: 
"To  the  Editor   of   the   Evening  Post, 

"Dear  Sir:  I  have  been  deeply  inter- 
ested in  the  discussion  of  trade  asso- 
ciations and  their  functions  and  iegaJ- 
ity,  to  which  your  paper  has  for  som» 
time  been  addressinsr  itself.  The  dis- 
cussion may  do  good  or  harm,  depend- 
ing upon  tfcs  point  of  view  from  which 
the  subject  is  approached  and  the  par- 
tiality or  taipartiality  with  which  con- 
flictinfe  views  are  presente<'. 

"I  am  frank  to  say  that  I  have  been 
disappointed  to  find  that  you  take  as 
your  text  views  that  were  expressed  by 
Mr.  Hoover  while  the  disclosures  of  the 
Lockwood  committee  affecting  these 
combinations  were  under  way,  before 
the  decision  by  the  United  States  Su- 
preme Court  in  Jie  Hardwood  Lumber 
case  and  against  which  I  vigorously 
protested  at  the  time  in  public  ad- 
dresses and  otherwise  as  distinctly 
misleading  and  contrary  to  the  public 
interest. 

"It  is  not  necessary  to  question  the 
sincerity  or  desire  for  public  service 
with  which  Mr.  Hoover  approached  the 
•ubject,  and  I  have  always  suspected 
that  the  same  point  of  view  which  was 
voiced  by  t'.ie  President  in  his  first 
message  to  Congress  was  inspired,  if 
not  Indicted,  by  Mr.  Hoover,  who  has 
persisted  in  regarding  this  important 
economic  question  from  the  narrow 
business  outlook  of  expediency  of  a 
layman  and  has  been  quite  oblivious 
•f  the  perils  Involved  in  the  practical 
ttjtpncatton  of  his  theories. 

"When  Judse  Caxpenter'B  decision  in 


the  Linseed  Oil  case  was  called  to  the 
attention  of  the  committee,  1  had  no 
hesitation  in  pronouncing  it  unsound 
or  in  predicting  that  the  innumerable 
price-fixing,  output-restricting,  and 
territory-dividing  associations  that 
were  masquerading  under  the  eupho- 
nious title  of  open-price  associations 
would  be  condemned  and  declared  un- 
lawful by  the   Supreme  Court. 

Wants  Impartial  Discussion 
"I  believe  there  is  opportunity  for  a 
high  order  of  service  in  this  discus- 
sion, if  impartially  conducted,  and 
trust  you  will  not  take  offence  at  my 
saying  that  you  have,  doubtless,  un- 
knowingly, presented  a  rather  one- 
sided view  of  the  subject.  Without 
having  at  hand  at  the  moment  all  the 
issues  of  your  paper  containing  these 
discussions,  I  should  say  that  perhaps 
90  per  cent  of  your  distinguished  con- 
tributors are  indiscriminate  defenders 
or  apologist?  of  the  system  that  has 
supplied  the  cover  under  which  these 
illeg^al  combinations  have  been  opera- 
ting, and  that  prominent  among  these 
contributors  are  the  paid  advocates  of 
the  associations,  some  upon  annual 
retainers;  at  least  one  of  whom  is 
and  has  been  for  many  years  upon 
an  annual  retainer,  devoting  his  en- 
tire time  to  the  vain  effort  to  keep 
these  illegal  associations  'prayerfully 
within   the   law.' 

"Others  have  represented  associa- 
tions that  have  been  condemned  by 
their  own  confessions  or  by  the  judg- 
ments of  the  court  as  flagrant  law 
violators. 

"This  particular  'authority,'  who  is 
one  of  many,  was  required  to  hurriedly 
dissolve  a  half  dozen  or  more  ouch 
'associations'  under  the  akernatlve  of 
indictments,  in  which  he  would  have 
played  a  prominent  j>art.    They  were 


palpable   covers   for   illegal    acts    ahd 
he  knew   it. 

"As  evidencing  the  fact  that  I  am 
not  opposed  to  legitimate  trade  as- 
sociations as  such,  permit  me  to  call 
your  attention  to  the  State  Trade  Com. 
mission  Act  that  was  pFeipared  by 
me  and  was  so  ably  at^d  ear-  ' 
nestly  supported  by  your  paper,  which 
passed  the  Senate,  and  to  the  support 
of  which  so  able  and  discriminating  • 
lawyer  and  jurist  as  Gov.  Miller  was  , 
finally  converted,  but  which  was  not 
permitted  to  be  brought  to  a.  vote  In 
the   Assembly. 

"May  I  also  call  your  attention  to 
the  'Memorial  to  Congress'  that  was 
prepared  by  me  and  offered  in  the 
Legislature  in  connection  with  this 
bill,  in  which  Congress  was  urged  t» 
amend  the  Federal  Trade  Commi«aion 
Act  so  as  to  permit  of  th«  licensing  ti 
legitimate  trade  associations  7 

Regulation  of  Associations 
"I  take  it  from  your  very  intelllgraiit 
discussion  of  the  merits  of  that  bill 
that  you  require  no  enlightetoient 
from  me  as  to  the  terms  «f  the  Tra4* 
Association  Bill.  In  brief,  it  provKIw 
for  the  licensing,  8upervii«ion,  aa4 
regulation  of  all  such  associations  antf 
forbids  any  corporation  becoming  a 
member  of  an  association  that  is  iiot: 
thus  licensed.  ■  .   . 

"The  suggestion  of  Mr.  Hoover  .tll»t  . 
the  Department  of  Commerce  Act  as  a  ■ 
sor^    of    irresponsible    supeir-l^verB- 
ment,  subject  to  no  law  or  right  of  : 
review  in  determining  what  such  asso- 
ciations may  or  may  not  do  is,  upon 
the  face  of  it,  quite  inadmlaslMe.  TbK 
important  function,  of  regulation  -  can 
only   be   safiely   entrusted   to  a  body 
whose  decieibns  are  reviewable  in  tke 
courts.    The  Department  of  Commereo 
has' no  such  power  aa  Mr.  Hoovar  tiaa 


28 


CO-OPERATIVE   COMPETITION 


endeavored  to  exercise,  and  I  greatly 
fear  that  notwithstanding  his  well 
meant  efforts  the  convention  that  he 
has  called  is  likely  to  make  confusion 
worse  confounded." 

"The  best  thing  he  can  do  in  the 
public  interest  Is  to  'call  off*  that 
meeting  and  to  recommend  legisla- 
tion enlarging  the  jurisdiction  of  the 
Federal  Trade  Commission  in  the 
particulars  indicated  by  the  act  that 
was  before  our  Legislature  or,  per- 
haps, in  an  improved  form.  I  have 
no  pride  of  opinion  on  this  subject. 
My  anxiety  is  to  find  an  instrumental- 
ity that  will  be  able  to  automatically 
suppress  the  many  criminal  con- 
spiracies that  are  to-day  masquerading 
under  the  guise  of  legitimate  trade 
associations  with  which  this  country 
1b  infested,  and  that  are  mainly  re- 
sponsible for  maintaining  the  high 
wist  of  livinK. 

"I  believe  Mr.  Hoover  will  find  after 
he  has  carefully  studied  the  operations 
of  some  of  these  apparently  "innocu- 
ous" associations,  that  many  of  the 
thing^  he  approves  of  having  these 
associations  permitted  to  do  are  de- 
structive to  free  competition,  such  as: 

"(1)  Keeping  competitors  advised  »t 
one  another"s  volume  of  supply  and 
demand ; 

"(2)  Of  the  character  of  their  com- 
petition; 

"(3)  Of  closed  transactions; 

"«)  Stabillidn;  the  various  types  of 


articles  that  are  manufactured  in  an 
industry;  and  other  similar  sugges- 
tions are  fraught  with  far  greater 
complications  than  he  imagines.  Many 
of  them  are  mere  links  in  a  chain  to 
throttle  competition. 

Would  "Stabilize"  Prices 

"The  exchange  of  information  of 
supply  and  demand  between  compet- 
itors offers  a  way  of  maintaining  tlie 
supply  just  sufficiently  below  the  de- 
mand to  maintain  excessive  prices. 
It  is  one  of  the  favorite  devices  for  re- 
stricting competition.  An  agreement 
between  competitors  'stabilizing"  their 
product,  translated  into  practice,  has 
in  the  past  meant  the  cutting  out  of 
many  competitive  types  of  goods.  It 
has  been  a  brake  upon  initiative  and 
ingenuity  in  devising  improved  ana 
more  attractive  types  and  has  inevit- 
ably led  to  thfc  'stabilizing"  of  the 
prices  of  the  'stabilized'  articles.  The 
choice  of  the  public  Is  thereby  greatly 
restrict«d,  and  progress  in  the  indus- 
try seriously  retarded.  If  all  competi- 
tors are  parties  to  such  an  arrange- 
ment, new  competition  with  an  im- 
proved article,  however  meritorious,  be- 
comes impossible.  One  could  go  on 
indefinitely  multiplying  answers  to 
these  specious  contentions. 

"And  yet  there  are  many  legitimatcT 
and  useful  things  for  the  benefit 
of  an  industry  that  may  be  accom- 
plished through   these  trade  associa- 


tions, but  only  if  they  are  rigidly 
supervised  at  every  step.  The  weapon 
they  may  wield  under  cover  of  their 
innocent  purpose  is  so  deadly,  and  so 
close  to  hand,  and  the  temptation 
to  seize  and  use  it,  cspesciaJly  In 
times  of  depression,  is  so  overpower- 
ing that  unless  there  is  an  admini- 
strative policeman  constantly  on  hand 
to  keep  peace,  the  public  is  bound 
to  suffer. 

"Realizing  the  necessity  of  such  an 
agency,  my  endeavor  in  formulating 
the  Trade  Commission  Act  was  to 
supply  that  need,  and  to  create  a 
model  for  the  regulation  of  like'  as- 
sociations in  interstate  commerce. 
Meantime  these  well  intentioned 
amateurish  attempts  to  replace  the 
laws  of  the  land  by  irresponsible,  un- 
regulated expedients  should  cease. 
They  are  causing  infinite  harm  in 
leading  business  men  to  believe  that 
they  will  be  protected  in  doing  things 
that  they  will  find  In  the  end  offend 
against  the  law.  They  should  know 
in  no  uncertain  terms  what  they  may 
and  may  not  do  in  these  associations. 

"That  is  what  the  proposed  State 
Trade  Commission  Act  was  intended 
to  accomplish.  I  sincerely  hope  Mr. 
Hoover  will  desist.  Unless  he  docs  so 
of  his  own  accord  Bomebody  should 
stop  him  for  his  own  good  before  it 
Is  too  late. 

"Very  truly  yours 

"Samuel  Untbrmtto." 
Much  25. 


CO-OPERATIVE    COMPETITlOKT 


29 


March  29,  1922. 

STANDARDIZATION  OF  PRODUCT 
MAKES  FOR  INDUSTRIAL  GAIN 

It  Cuts  Out  Waste,  Simplifies  Manufacture,  and  Reduces  Capital  Tied 

Up  in  Stock — Department  of  Commerce  Could  Organize 

Industries  in  Groups  for  Benefit  of  All 


By  F.  M.  FEIKER 
Vice-President  McGraw-Hill  Company,  Inc. 


Of  the  twenty-five  or  thirty  specific 
ftctivities  in  which  trade  associations 
may  do  a  constructive  worli,  non-i  of- 
fers greater  opportunity  for  collective 
action  than  standardization.  A  discus- 
sion of  the  opportunity  for  standard! - 
Ration  through  the  medium  of  the  trade 
association  should  not  be  clouded  by 
too  narrow  an  interpretation  of  this 
word  "standardization."  In  a  technical 
sense  standardization  involves  two 
broad  classes  of  activities — one,  the 
inaniifacture  of  the  product,  the  other, 
commercial  questions  of  distribution. 

Standardization  involving  the  manu- 
facture of  products  has  to  do  with 
the  setting  >ip  of  specifications  for  the 
quality  of  raw  matei'nis  and  finished 
product.  The  establishment  of  stan- 
dards of  production  involves  questions 
of  technical  research,  of  improvement 
in  methods,  of  design  of  apparatus, 
and  equipment  and  appliances  for  the 
fabrication  and  manufacture  of 
products. 

In  this  field  of  technical  standardi- 
cation  hundreds  of  committees  of  tech- 
nical societies  and  "of  manufacturers' 
associations  have  been  at  work,  and 
this  great  body  of  standardized  manu- 
facturing practice  has  been  a  large 
factor  la  tb*  relatively  high  standard 
of  produottve  efficiency  which  obtains 
la  the  American,  manufacturing  es- 
tablishments. 

To  Eliminate  Waste 

The  second  class  of  standardization 
of  products  is  perhaps  better  termed 
"simplification"  rather  than  standardi- 
sation, and  involves  dimensional  stan- 
dardization of  sizes  and  weights  of  ma- 
terials and  products.  This  field  of 
•Implification  is  one  of  the  broad  areas 
Into  which  the  trade  association  may 
project  itself  in  an  attempt  to  eliminate 
wastes  of  distribution. 

For  fifty  years  in  this  country  we 
kitve  been   engaged     In     raising   the 


standards  of  production  In  our  manu- 
facturing processes,  and  by  and  large 
have  attained  a  high  degree  of  effi- 
ciency. In  our  "groping  for  stability," 
as  Secretary  Hoover  termed  It  in  his 
introductory  article  to  this  series,  we 
are  now  making  tentative  analyses  of 
our  present  methods  of  distribution 
and  the  field  of  simplification  in  va- 
riety, styles,  and  sizes  in  li^dustry  of- 
fers a  fascinating  opportunity  for  the 
reduction  of  distribution   wastes. 

This  sortie  into  the  simplification  of 
excess  variety,  styles,  and  sizes  should 
not  be  confused  with  an  attempt  to 
eliminate  Individuality  or  styles  in 
merchandise.  It  is  rather  an  attempt 
to  classify  and  analyze  the  component 
factors  entering  into  the  design  and 
construction  of  a  product  or  of  a  piece 
of  equipment,  and  to  arrive  at  an 
agreement  with  regard  to  those  fea- 
tures of  the  products  which  do  not 
involve  questions  of  individuality  or 
style,  but  the  unnecessary  duplication 
of  parts,  of  sizes,  and  of  varieties. 

It  is  possible  by  taking  a  "line  of 
products"  to  simplifv  that  line  in  the 
direction  of  reducing  the  amount  of 
capital  tied  up  in  stock  for  the  manu- 
facturer, the  wholesaler,  and  the  re- 
tailer, and  at  the  same  time  give  the 
buyer  the  same  opportunity  for  choice 
that  already  exists. 

Simplifies  the  Stock 

Instances  of  this  character  are 
many.  Take  the  case  of  containers 
for  paints  and  varnishes.  It  has  been 
suggested  that  the  half-gallon  or  two- 
quart  can  size  for  paint  is  unnecessary. 
It  is  a  matter  of  common  sense  that 
if  a  buyer  wishes  two  quarts  of  paint 
it  is  quite  as  simple  to  purcha.se  two 
one-quart  cans  as  it  is  to  purchase 
one  two-quart  can,  and  It  is  equally 
obvious  that  if  the  two-quart  sizes 
are  eliminated  it  means  the  elimina- 
tion from  the  stock  of  the  dealer  of 
a   more   or   less   dead   size   carried   in 


a  wide  variety  of  colors,   let  us  Say, 
and  in  a  wide  variety  of  paints. 

Take  another  example  from  th« 
agricultural  implement  field.  The  styl* 
and  character  of  a  ploughshare  to  fit 
different  styles  and  different  condi- 
tions of  work  are  a  question  of  Indi- 
viduality. The  manufacturer  must 
continue  to  have  his  own  Ideas  of  the 
proper  design  for  a  ploughshare  to 
meet  different  working  conditions,  but 
it  Is  quite  possible  for  an  association 
of  manufacturers,  after  careful  survey 
of  the  buyers'  needs,  to  decide  upon 
what  shall  b^  a  standard  wagon  tread 
and  what  shall  be  a  series  of  wagon 
wheel  heights. 

Such  standards  having  been  adopted, 
It  is  easy  to  see  that  this  simplification 
of  sizes  and  varieties  makes  It  pos- 
sible for  all  manufacturers  to  buy 
material  in  quantities  for  wagon 
wheels  cut  to  definite  sizes,  and  there- 
fore, in  turn,  for  the  manufacturer 
who  furbishes  this  bulk  material  to 
run  his  plant  more  efficiently.  Elimi- 
nation of  excess  variety  saves  material 
from  the  tree  to  the  wagon  wheel. 

Sr^ch  elementary  standardization  and 
simplv?ca,tions  are  being  carried  for- 
ward by  many  associations  and  at- 
tempts are  being  made  by  others  to 
enter  that  more  complex  field  of  sim- 
pliflcation  which  has  to  do  with  tho 
relations  between  the  market  possibili- 
ties of  equipment  and  products  and 
the  production  problems  of  that  prod- 
uct. These  questions  involve  not  only 
the  acceptance  of  the  simplification  of 
sizes  and  dimensions  for  a  group  of 
manufacturers  through  the  medium  of 
the  trade  association,  but  an  educa- 
tional campaign  directed  to  the  indi- 
vidual members  of  the  association,  ex- 
plaining the  processes  of  simplifica- 
tion and  standardization  that  have 
btcn  worked  out  to  the  advantage  of 
on(.  factory,  so  as  to  make  them  the 
common  practice  of  all. 


so 


CO-OPEEATIVE   COMPETITION 


There  are  three  groups  having  a  ' 
definite  interest  In  these  programmes 
of  standardization — the  maker,  the 
buyer,  and  the  Government.  During 
the  war  progress  was  made  first  by 
the  Commercial  Ecortomy  Board  and 
confirmed  by  the  conservation  division 
Of  the  War  Industries^  Board  in  car- 
rjring  forward  the  educational  process 
among  manufacturers  so  that  certain 
■impliflcattons  were  possible  under  the 
•tress  of  saving  material  or  ooal  or 
Increasing  production  for  war  needs. 

Some  War-Learned  Lessons 

Some  manufacturers  continued  to 
take  advantage  of  war-learned  les- 
sons of  simplifications,  but  it  is  one 
thing  to  set  up  standards  and  another 
to  carry  them  out,  and  under  sharply 
competitive  conditions  In  a  buyers' 
market  It  is  very  difficult  to  main- 
tain collective  standards  in  an  In- 
dustry. 

There  is  not  space  in  this  article  to 
go  into  detail  on  this  phase  of  the 
relation  of  trade  association  work  to 
standardization,  but  it  is  one  of  the 
tWst  important  phases,  and  it  is  in 
this  phase  particularly  that  there  Is 
an  opportunity  for  the  Government  to 
function  in  a  way  not  generally  rec- 
ognized by  the  American  business 
man.  The  average  man  in  business 
states  his  complete  philosophy  with 
regard  to  the  Government  when  he 
says:  "The  less  I  have  to  do  with  it 
the  better." 

This  attitude  follows  largely  because 
the  Government  function  in  its  con- 
tact with  business  has  been  a  regula- 
tory function.  In  reorganizing  the 
Department  of  Commerce  it  has  been 
Secretary  Hoover's  idea  thaft  the  De- 
partment of  Commerce  must  be  de- 
veloped on  the  basis  of  bringing  to- 
gether the  collective  opinions  of  buyer 
and  seller  for  the  common  ad\-9ntage 
Of  both  of  them  and  of  the  public,  and 
that,  because  the  Department  of  Com- 
merce could  take  a  neutral  viewpoint 
tt  could  act  as  a  centre  point  around 
which  groups  could  gather  represent- 
ing all  phases  and  sides  of  a  construc- 
tive programme  for  business. 

To  make  a  programme  of  standardi- 
Ution  "stick"  It  fc!  necessary  that  It 
b«  arrived  at  by  mutual  agreement  of 
lUl  parties  concerned,  that  they  have 


a  common  understanding  of  its  basic 
desirability,  and  that  all  parties  t--,  an 
agreement  have  some  definite  place  in 
which  they  can,  on  the  one  hand, 
lilace  the  final  responsibility  for  the 
standard  to  be  adopted,  and.  on  the 
other  hand,  take  advantage  of  the 
great  educational  force  which  is  ex- 
erted when  the  Government  stamp  of 
approval  is  given  to  a  programme  of 
standardization. 

Perhap.s  the  '  simplest  way  to  ex- 
plain the  function  of  associations  rep- 
resenting buyers,  sellers,  specifiers, 
and  the  Government  through  the  De- 
partment of  Commerce  is  to  take  a 
concrete  illustration. 

A  Concrete  Case 

The  National  Paving  Brick  Manufac- 
turers' Association  had  tried  for  several 
years  to  get  acceptance  of  a  list  of 
standard  size  of  paving  brick,  which 
as  manufacturers  they  believed  were 
sound,  but  which  would  not  be  ac- 
cepted by  the  buyers.  They  brought 
their  problem  to  the  Department  of 
Commerce  with  the  suggestion  that 
committees  representing  themselves 
and  others  representing  buyers  be 
brought  together  to  discuss  the  oppor- 
tunity for  the  elimination  of  excess 
varieties  and  sizes. 

It  is  not  necessary  to  expand  the 
technique  of  this  pn  ■  eeding,  except  to 
ejnphasize  the  fact  iiat  the  manufac- 
turers took  the  initiative  to  prepare  a 
detailed  report  showing  the  sizes  in 
use  at  the  time,  and  this  report  was 
made  the  basis  for  calling  together  at 
a  later  date  some  thirty  organizations 
representing  the  manufacturers,  users, 
and  engineers.  There  weie  found  to 
be  some  sixty-six  sizes  and  varieties  of 
paving  brick.  After  a  contej-ence  last- 
ing one  day,  these  sizes  were  reduced 
by  mutual  agreement  from  sixty-six 
to  eleven,  and  a  standing  committee 
was  appointed  to  function  with  the 
Department  of  Commerce  for  the  pur- 
pose of  considering  the  possibility  of 
reducing  the  eleven  sizes  to  three. 

The  simplified  list  of  sizes  of  bricks 
agreed  upon  is  now  in  the  proi' c^s 
of  being  ratified  by  (..c  several  asso- 
ciations whose  representatives  met  at 
the  Department  of  Commerce,  and  the 
finished  standards  are  printed,  having 
been    issued    by    the    Department    of 


Commerce   with   a    list   of  those  sub- 
scribing  to  them. 

The  steps  In  thig  proceeding  are  ob- 
vious. 

(1)  The  need  for  the  proposed 
simplification  comes  out  of  industry 
itself,  and  not  from  the  Government 
into   industry. 

(2)  That  branch  o£  the  industry 
which  suggests  the  need  presents  a 
detailed  analysis  of  that  need  as  a 
basis  for  bringing  together  all  those 
concerned. 

(3)  The  Department  of  Commerce 
acts  as  a  focal  point  for  this  dis- 
cussion and  adds  the  weight  of  its 
influence  ag  an  educational  force  in 
maintaining  the  standards  agreed 
upon  between  the  parties  represent- 
ing buyer,  seller,  and  public. 

The  Department  of  Commerce  is 
thoroughly  in  a  position  to  carry  for- 
ward both  the  programmes  for  stand- 
ardization of  production  and  the  pro- 
grammes for  the  simplification  ol 
sizes  and  variety.  The  Bureau  of 
Standards,  in  itself  the  largest  Gov- 
ernment research  laboratory  in  the 
world,  has  done  remarkable  work 
along  the  line  of  production  standard- 
ization, involving  research  and  tech- 
nique. Under  Secretary  Hoover's  di- 
rection there  has  been  established  as 
a  branch  of  the  Department  of  Com- 
merce a  Division  of  Simplified  Prac- 
tice which  has  for  its  function  the 
undertaking  of  those  groups  of  ac- 
tivities relating  to  the  second  broad 
group  of  problems  of  standardization 
— namely,  simplification  of  variety  and 
sizes. 

The  opportunities  for  saving  In  ma- 
terials and  capital  invested  by  the 
sensible  analysis  of  the  areas  for  sim- 
plification in  industry  form  one  of  the 
most  constructive  purposes  of  the 
trade  association.  Secretary  Hoover 
has  had  the  vision  to  see  that  the 
problem  is  really  one  of  broad  Indus- 
trial education,  with  the  Initiative  for 
the  movement  coming  out  of  industry 
itself  rather  than  out  u  f^overnment 
Into  industry.  Something  over  150 
contact  committees  of  industrly  have 
been  set  up,  representing  many  differ- 
ent industries,  and  associated  foi-  col- 
lective action  through  the  trade  asso- 
ciations, and  for  the  spre.^d  of  indus- 
trial information  through  the  trad* 
and  technical  press. 


CO-OPERATT^   COMPETITION 


Tl 


March  30,  1922. 

FINDS  GOVERNMENT  AND  TRADE 
GROUPS  IN  CLOSER  RELATIONS 

,War  Forced  New  Methods — Business  Men  Must,  He  Adds,  Continue 
To  Give  Advice  at  Washington — ^Makes  Plea  for  More  Busi- 
ness in  Government  and  Less  Government  in  Business 


By  HUGH  P.  BAKER 

American  Paper  and  Pulp  Association 


Business  put  a  new  vitality  into  the 
Government  at  Washington  when  the 
emergency  of  war  forced  a  moderniza- 
tion of  the  antiquated  departmental 
methods.  If  this  new  life  is  to  con- 
tinue, if  bureaucracy  is  not  again  to 
take  the  saddle,  American  business 
men  must  continue  to  Kive  their  coun- 
sel to  their  Government. 

When  hundreds  of  the  leadinK  busi- 
ness men  of  the  country  left  their 
offices  and  factories  to  give  of  their 
ability  and  energy  towards  the  win- 
ning of  the  war.  an  influence  upon 
the  business  of  Government  was  ex- 
erted which  will  b©  felt  for  years. 
Where  antiquated  and  bureaucratic 
methods  of  work  had  become  fixed  in 
many  of  the  departments  of  Govern- 
ment, resulting  often  in  a  hopeless 
attitude  on  the  part  of  the  employee 
desirous  of  giving  service,  the  war- 
time Influx  of  aggressive  thinking  men. 
men  accustomed  to  getting  things 
done,  caused  such  a  stirring  up  and 
changing  of  Governmental  activities 
that  the  same  methods  will  never 
again  be  used  or  the  same  attitudes 
be  shown  towards  the  public  as  those 
which  existed  in  many  of  the  bureaus 
before  the  war. 

The  effect  of  this  stimulating  change 
is  difficult  to  measure,  but  it  is  ap- 
parent and  it  will  persist  and  In  the 
end  will  be  tremendously  beneficial  to 
the  business  and  industrial  life  of  this 
country. 

Many  trade  associations  were  in  ex- 
istence before  the  war,  and  many  of 
them  had  honorable  records  of  achieve- 
n-.ent  in  the  development  of  better 
standards  of  business  and  better  fel- 
lowship among  men.  Evils  had  crept 
into  some  o£  the  associations,  as  eyils 
creep  into  any  association  of  men. 
However,  it  was  fortunate  .indeed  in 
the  emergency  of  war  that  many  in- 
dustries were  already  mobilized  through 
their  trade  associations  and  that  rep- 


resentatives of  these  associations  could 
be  called  to  Washington  immediately 
to  assist  in  the  adjustment  of  busi- 
ness and  of  industry  to  the  needs  of  a 
great  war. 

Mobilized  Industry 

The  trade  association  quickly  be- 
came known  in  the  early  war  days 
as  an  effective  mobilization  of  indus- 
try, for  it  was  seen  that  accurate  in- 
formation as  to  business  and  industry 
could  be  got  promptly  through  the 
associations,  which  were  almost  with- 
out exception  ready  and  willing  to 
give  the  most  complete  information  as 
to  conditions  In  their  particular  groups. 
So  valuable  was  the  character  of  this 
service  that  the  Gxivernment  Is  con- 
tinuing to  call  upon  the  trade  associa- 
tion to-day  for  infoiTnation  as  to  the 
industries. 

Many  associations,  appreciating  the 
advantages  to  the  groups  which  they 
represent  of  being  on  the  ground  to 
give  vital  trade  information  to  gov- 
ernmental departments  and  members 
of  Congress,  have  opened  offices  in 
Washington,  which  are  serving  also  as 
channels  through  which  the  activities 
of  the  Government  are  taken  out  to 
their  members  throughout  the  coun- 

This  give  and  take  of  information 
is  not  In  any  sense  what  has  commonly 
been  known  as  lobbying.  It  would  ap. 
pear  that  the  day  of  the  old  time 
lobbyist  has  passed  and  that  we  are 
to  have  located  in  Washington,  work- 
ing through  trade  associations,  intel- 
ligent, wideawake  men  who  know  their 
industries,  who  can  give  facts  about 
the  industries  to  the  Federal  depart- 
ments and  to  members  of  Congress. 

Every  member  of  Congress  cannot 
know  what  all  of  the  great  industries 
of  the  country  are  doing,  their  needs, 
and  the  effect  upon  them  of  various 
forms  of  legislation.  Members  of  Con- 


gress should  welcome  a  straightfor- 
ward and  accurate  presentation  of 
facts  and  information  as  to  a  particu- 
lar industry  or  a  particular  line  of 
business. 

The  changed  attitude  of  Government 
toward  business  may  best  be  appreci- 
ated through  relating  the  experiences 
of  a  trade  secretary  in  his  contact  with 
Government  departments  and  bureaus 
since  the  war.  It  should  be  added 
that  the  experience  of  business  men 
with  the  Government  during  the  war 
has  hastened  by  Jaany  years  the  con- 
version of  the  business  man  to  the 
belief  that  the  chief  function  of  the 
Government  Is  service — rather  than 
the  erection  of  barriers  against  the 
business  man  and  the  citizen. 

Taking  Active  Interest  '  '  ' 
Many  a  manufacturer  who  had.  be- 
fore 1914,  become  convinced  that  it 
was  better  rto  keep  entirely  laway 
from  Washington  and  have  as  littlo 
as  possible  to  do  with  thd  Govern- 
ment is  with  caution  now  beginning 
to  believe  that  it  is  his  business  as 
an  American  citizen  to  express  him- 
self in  Government.  As  he  watches 
tariff  and  other  legislation  to-day  he 
is  being  forcibly  convinced  that  if 
agriculture  and  labor  are  important 
adjuncts  to  the  proper  carrying  on 
of  Government  the  business  man  and 
the  manufacturer  have  equally  im- 
portant functions  in  the  Government. 
When  the  writer  came  into  the 
American  Paper  and  Pulp  Association, 
a  national  federated  organization 
made  up  of  twenty  affiliated  associa- 
tions and  sections,  he  found  thfit  the 
paper  industry  was  as  effectively  or- 
ganized into  associations  as  any  of  the 
other  great  industries  of  the  country. 
The  different  groups  of  paper  manu- 
facturers, organized  for  better  con- 
tact among  themselves,  and  for  better 
information  as  to  their  own  activities 


82 


COOPERATIVE   COMPETITION 


and  as  to  the  trend  of  general  busi- 
ness, make  up  this  national  federated 
organization. 

This  association  is  doing  no  statis- 
tical work  except  of  u  ver>  general 
character,  but  it  has  developed  effec-  j 
tive  service  to  the  industry  along  lines 
of  such  common  problems  as  educa- 
tion, tariff,  taxation,  and  raw  mate- 
rials, coupled  with  newly  developed 
ideas  as  to  the  application  of  forestry 
In  the  conservation  of  raw  materials 
and  contact  with  the  Federal  Goi'- 
ernment. 

One  of  the  first  experiences  in  the 
development  of  a  better  contact  with 
the  Federal  Government  was  the 
representation  by  the  association  of 
the  industry  as  a  whole  in  the  fram- 
ing of  pending  tariff  legislation.  l4 
years  past  different  individuals  and 
groups  of  manufacturers  had  gone  to 
Washington  with  widely  divergent 
ideas,  and  the  result  was  confusion 
on  the  part  of  those  drafting  the 
legislation,  and  suspicion  and  ill  feel- 
ing on  the  part  of  the  manufacturers. 

Through  a  tariff  commission  of  this 
association,  made  up  of  representa- 
tives of  every  group  of  the  industry, 
the  whole  tariff  situation  as  affecting 
the  paper  industry  was  gone  over 
carefully  and  a  very  sincere  effort 
made  to  harmonize  interests  of  all  of 
the  groups  in  a  way  that  would  let 
them  present  their  needs  at  Washing- 
ton as  a  group  and  a  unit.  A  more 
effective  presentation  has  been  made 
by  the  industry  In  tariff  matters  now 
pending  than  ever  before. 

The  Federal  Government,  main- 
tained in  part  by  taxes  paid  by  man- 
nfacturers,  has  developed  a  number 
of  very  effective  agencies  in  Washing- 
ton tor  service  to  this  and  other  In- 
dustries. The  Bureau  of  Standards  of 
the  Department  of  Commerce  has  a 
paper  section,  In  which  Is  carried  on 
research  work  of  great  value  to  the  in- 
dustry. The  changing  attitude  of 
manufacturers  towards  the  Govern- 
ment, the  developing  spirit  of  coop- 
eration which  originated  during  the 
war,  brought  the  association  to  the 
appointment  of  an  advisory  commit- 
tee to  work  with  the  paper  section  of 
the  Bureau  of  Standards,  to  interpret 
to  the  bureau  the  problems  and  the 
needs  of  the  industry,  and  to  take 
back  to  the  Industry  the  results  of  the 
work  of  the  bureau. 


The  United  States  Forest  Service, 
through  the  Forest  Products  Labora- 
tory at  Madison,  Wis.,  and  in  other 
ways,  has  given  great  service  to  the 
Industi-y,  and  is  in  a  position  to  give 
more.  So,  tco,  for  several  years  the 
association  has  had  within  itself  a 
very  aggressive  committee  on  forest 
conservation,  which  has  repeatedly 
put  paper  manufacturers  back  of  the 
activities  of  the  Forest  Products 
Laboratory  at  Madison  and  has  called 
in  the  chief  forester  for  consultation 
in  prospective  legislation,  affecting  the 
paper  manufacturers  owning  timber- 
lands.  This  committee  proposes  to 
continue  its  aggressive  activities  until 
the  Federal  Government  adopts  some 
ktid  of  a  constructive  national 
forestry  policy. 

The  action  of  the  present  Adminis- 
tration in  placing  at  the  head  of  the 
Department  of  Commerce  a  man  of 
recognized  ability  as  an  engineer  and 
a  business  man,  and  especially  as  a 
leader  among  business  men  developed 
such  confidence  in  the  industry  that 
the  desire  wts  expressed  at  once  among 
ppper  manufacturers  that  some  means 
ol'  more  effective  cooperation  with 
bureatis  of  the  department  be  worked 
out.  The  result  was  the  appointment 
by  the  association  of  an  unusually 
representative  committee  of  manufac- 
turers, taken  not  only  from  members 
of  the  association,  but  from  the  en- 
tire industry,  to  work  especially  with 
the  Commodity  Division  of  the  Bureau 
of  Foreign  and  Domestic  Commerce, 
having  to  do  with  paper. 

While  the  industry  does  not  believe 
that  it  should  be  represented  ^Irectly 
in  Washington,  it  does  believe  that 
through  the  Chamber  of  Commerce  of 
the  United  States,  which  is  the  larg- 
est and  most  representative  organ- 
ization of  business  men  in  Washing- 
ton, it  should  make  its  needs  and  Its 
service  felt  in  cooperation  with  other 
American  Industries. 

Co-operation  Urged 

While  it  will  take  years  to  over- 
come, in  the  minds  of  manufacturers, 
the  idea  that  the  Government  is  In 
existence  to  hamper  and  annoy  rather 
than  to  serve,  and  while  It  will  take 
just  as  long  for  some  Government 
employees   to  get  over  the  Idea  that 


every  manufacturer  who  has  any 
dealing  with  the  Government  is  seek- 
ing a  eelflsh  end,  there  are  strong 
evidences,  as  the  result  of  the  expe- 
riences of  this  and  other  associations, 
of  a  tendency  towards  cooperation 
rather  than  antagonism  in  the  rela'- 
tlons  of  the  Industry  and  the  Govern- 
ment. 

There  is  a  growing  feeling  also  that 
as  the  manufacturer  contributes  more 
in  support  of  the  Government  he 
should  have  more  to  say,  as  an  obli- 
gation, as  to  how  taxes  are  to  be 
spent,  emphasizing  the  fact  that  most 
of  the  Government's  problems  are  eco- 
nomic and  not  political.  The  appeal 
which  the  presenf  Administration  1* 
making  upon  the  bails  of  more  busi- 
ness in  Government  and  less  Govern- 
ment in  buslnes.'i  is  a  strong  one. 

There  is  no  doubt  that  the  increas- 
ing recognition  of  the  economic  fac- 
tors entering  into  the  carrying  on  ot 
business  and  of  Government  will  make 
the  trade  association  permanent  in  the 
development  of  our  industries.  As  the 
average  man  honestly  desires  to  be  a 
good  citizen,  to  play  his  part  in  his 
community  and  his  Government,  so 
the  average  trade  association  is  hon- 
estly concerned  with  effective  service 
to  the  industry  which  it  represents 
and  to  the  Government. 

When  the  Government  recognizes 
fully  that  the  trade  association  is  a 
necessity  in  the  national  Industries 
Of  to-day  and  to-morrow,  and  that  It 
can  be  of  tremendous  assistance,  not 
only  to  the  Industry  which  gives  it 
life,  but  also  to  the  carrying  on  of 
Governmental  activities,  there  will  be 
less  suspicion  shown  by  the  Govern- 
ment toward  all  trade  associations. 

The  trade  association  could  and 
should  play  as  important  a  part  in 
peace  activities  as  it  did  during  the 
war.  Trade  associations  recognJz* 
the  necessity  of  limiting  their  activ- 
ities to  what  is  best  for  ail  of  their 
membership  and  for  the  welfare  of 
the  community  and  the  Government. 
There  is  no  doubt  that  a  plan  will 
be  worked  out,  possibly  through  a 
change  in  legislation,  that  will  makm 
it  possible  for  the  trade  association 
to  serve  Industry,  and  at  the  same 
time  to  assist  tremendously  in  th« 
service  which  the  Government  is  seek- 
ing to  give  to  the  peoplo  of  th*  coun« 
try. 


COOPERATIVE   COMPETITION 


83 


March  31,  1922 


TRADE    GROUPS    CAN    SIMPLIFY 
PRODUCT  AND  SAVE  MONEY 

Make  Standard  Sizes— Method  Is  Used  to  Advantage  in  the  Paper 

Industry— Business  Men  Urged  to  Study  Hoover's  Plan  for 

Co-operation  in  Trade  Associations 


By  EMMETT  HAY  NAYLOR 
Author  of  "Trade  Associations,  Their  Organization  and  Management" 
On*  day  a.   few  years  ago  a,  man 
came  into  my  oflflce  in  a  great  state  of 
nerves. 

"Is  this  Government  trying  to  ruin 
my  business?"  he  demanded.  "Here  I 


have  received  a,  notice  telling  me  that 
I  have  to  cut  out  a  great  many  lines 
of  paper  that  I  have  made  heretofore 
and  put  my  whole  business  on  a  few 
weights  ^nd  sizes,  and  I  do  not  intend 
to  do  It." 

After  a  few  further  remarks  he 
calmed  down  sufficiently  to  allow  me 
to  talk  it  over  with  him.  I  pointed 
out  that  I  did  not  thinic  that  the 
Government  was  attempting  to  regu- 
late his  business  out  of  existence,  but 
that  the  War  Industries  Board,  that 
had  so  offended  him,  was  merely  ask- 
ing him  to  simplify  bis  product  so  as 
to  increase  production  and  cut  down 
costs.  I  asked  him  if  there  was  any 
particular  reason  why  there  should  be 
80  many  various  sizes  of  paper,  and 
the  only  reason  he  could  give  was  that 
there  has  always  been  a  demand  for 
them. 

He  did  not  realize  that  demand  for 
a  variation  in  a  product  is  often  merely 
a  result  of  caprice  with  no  particular 
reason  behind  it  and  that  the  public 
can  be  educated  into  confining  its 
wants  to  a  few  standard  products  as 
well  as  a  great  variety.  The  thing 
that  disturbed  him  was  that  he  felt 
that  any  attempt  towards  standardiza- 
tion would  Immediately  take  away 
from  the  individuality  of  iiis  product. 

I  asked  him  to  forget  the  word 
"standardization"  and  rather  call  it 
Bimpliflcatlon  as  I  realized  that  a  few 
words  like  standardization,  efficiency 
and  psychology  impressed  a  good  many 
business  men  as  theoretical  and  turned 
them  against  any  proposition  to  which 
they  were  attached. 

F.  M.  Feiker  has  in  this  series  of 
articles    covered  this  subject  so  well 


in  his  general  facts  that  my  contribu- 
llon  will  merely  be  to  show  how  sim- 
plification has  worked  in  certain  in- 
stances. So  first  let  us  consider  the 
paper  Industry. 


In  the  manufacture  of  high  grade 
papers  there  used  to  be  all  kinds  of 
sizes,  weights,  and  colors,  as  every 
customer  wanted  something  different 
and  dIsUnotive.  It  finally  got  to  d 
point  where  most  of  the  mills  were 
practically  in  a  specialty  business— 
that  Is.  every  order  was  so  different 
from  other  orders  that  the  goods  had 
to  be  specially  made  to  meet  all  the 
different  kinds  of  specifications  on 
the  order.  This  was  most  expensive, 
both  from  a  production  and  distribu- 
tion standpoint.  It  finally  came  to 
such  a  pass  that  the  mills,  as  a  mat- 
ter of  self-preservation,  decided  that 
something  mr       be   done   about   it. 

As  regards  tiizcs,  the  manufaclurers 
of  high  grade  papers  cut  down  i/ie 
sizes  from  about  154  to  25  standard 
sizes,  which,  at  the  present  time,  meet 
all  reasonable  requirements.  If,  how- 
ever, any  man  wants  a  special  size  he 
can  have  it,  but  he  will  have  to  pay 
for  the  standard  stock  paper  in  the 
larger  size  from  which  his  special  size 
is  cut.  Thus  the  mill  is  saved  the  loss 
from  waste  in  cutting  as  well  as  com- 
pensated for  the  extra  labor. 

After  the  sizes  were  finally  reduced, 
the  question  of  uniform  weights  had 
to  be  settled.  Customers  felt  that  they 
must  have  a  certain  weight  for  a  cer- 
tain purpose  with  the  result  that  the 
paper  manufacturers  wore  making  so 
many  different  kinds  of  weights  that 
it  meant  a  large  expense  to  them, 
whereas  to  distinguish  between  some 
of  these  weights  would  take  a  delicate 
testing  machine.  , 

In  any  fabricated  article,  such  as 
cotton,  woollen  cloth,  or  paper,  the 
weaving  machines  aave  to  l>e  adjust- 


ed so  that  the  weight  of  the  product 
Will  meet  cerUin  specifications.  If  th« 
machine  can  be  adjusted  at  the  begin- 
ning of  the  week  to  make  a  run  of 
a  uniform  weight,  no  time  is  lost  in 
adjusting  the  machine  and  the  prod- 
uct  can  thus  be  stored  and  sold  from 
stoclc.  This  not  only  slmpl.fl^  p,™ 
duction,  but  also  allows  the  millg  to 
increase  production  since  they  do  not 
have  to  shut  down  and  readjust  a. 
they  used  to  do  for  special  orders. 

Hegular  standard  weight,  wer* 
finally  adopted  by  the  paper  manufac 
turers  so  that  by  this  simplification  of 
sizes  and  weights  they  were  able  to 
cut  down  on  their  opemting  costs  and 
thus  pass  on  the  benefit  in  lower 
prices  to  the  consumers. 

Making  Standard  Sizes 
Then  simplification  of  cover  pap«r 
was  advocated,  first  by  the  National 
Association  of  Purchasing  Agents  and 
then  by  the  printers  and  paper  mer- 
chants of  the  country  through  their 
associations.  Everybody  knows  what 
a  nuisance  it  is  to  receive  all  sizes 
and  sorts  of  catalogues,  which  sel- 
dom fit  a  drawer  and  are  generally 
thrown  up  on  the  top  of  a  desk  or 
bookcase  to  collect  dust.  If  they  ever 
are  referred  (o  they  are  generally  in 
such  a  dirty,  dog-eared  condition  that 
the  product  advertised  in  the  cata- 
logue makes  a  poor  impression,  just 
like  a  man  with  a  soiled  collar. 

And  so  two  standard  sizes  and  mul- 
tiples thereof  of  cover  paper  were 
adopted,  which  can  be  folded  and  al- 
way.s  remain  the  same  proportion 
throughout.  These  sizes  are  known  as 
the  hypotenuse  size,  meaning  that  the 
sizes  adopted,  whenever  folded  over  or 
doubled,  always  maintain  the  same 
ratio  in  length  and  width.  Now  that  ' 
all  booklets  are  made  in  th:s  standard 


m 


C50-0PEEATIVE   COMPETI'TIOlir 


■iBe,  they  fit  the  standard  printing 
press  and  go  into  the  standard  cabinet 
a»inade  by  the  office  equipment  people. 
Thus  has  the  simplification  of  the 
catalogue  business  through  the  stand- 
ardization of  the  cover  paper  sizes 
been  far-reaching  and  most  satisfac- 
tory to  aJl  concerned. 

This  elmpliflcatlon  is  true  also  in  a 
number  of  other  Industries.  They  even 
simplified  bricks.  A  brick  is  a  brick,  I 
always  thought.  I  had  the  same  idea 
the  first  time  I  heard  Mr.  Taylor  lec- 
ture about  "efficient"  shovelling.  It 
seemed  to  me  that  the  only  way  to 
shovel  was  just  to  shovel.  And  so  with 
bricks.  But  the  Department  of  Com- 
merce through  the  Bureau  of  Stand- 
ards recognized  the  brick  as  something 
else  than  to  fill  a  hod  or  settle  an  ar- 
Crument.  Bricks  had  to  be  simplified. 
The  manufacturers,  contractors,  city 
paving  commissions,  and  everybody 
but  the  ice  cream  and  confidence  men 
were  called  to  "Washington  and — well, 
bricks  were  simply  slmplifled.  A  cer- 
tain brick  of  a  certain  size  for  a  cer- 
tain purpose,  and  not  a  wide  variety 
of  qualities  and  sizes  for  the  same  pur- 
pose. 

And  the  corsets.  Who  on  earth 
would  dare  standardize  anything  a 
woman  wears?  And  yet  it  was  done. 
I  don't  recall  how  many  armored  ibat- 
tleships  were  built  from  the  steel  thus 
saved — it  really  ran  into  thousands  of 
tons.  But  in  the  corset  industry  the 
simplification  of  the  product  meant  a 
remarkable  saving  to  all  manufactur- 
ers, and  so,  if  old  supply  and  demand 
do  not  get  too  Insistent,  this  simpli- 
fication is  here  to  stay. 

Machines,  machine  tools,  lumber, 
office  equipment — the  list  is  long  and 
encouraging — all  have  been  simplified 
or  ought  to  toe.  Did  you  ever  think 
of  bath  tubs  being  simplified?  They 
have  been  in  many  ways.  For  in- 
stance, the  roll  on  a  tub.  Did  you 
ever  in  sober  moments  notice  that  a 
bath  tub  has  a  roll?  Well,  it  has.  It 
is  the  roll  or  tumed-over  edge  that 
you  so  confidently  grasp  to  pull  your- 
self up  from  your  matutinal  ablution. 
These  rolls  were  two  inches,  one  and 
three-quarter  tndttas,  on«  and  ene-half 
inches,  and  so  on  down  to  one-half  an 
inch  wide,  and  every  architect  or  con- 
tractor was  always  specifying  a  roll 
a  quarter  of  an  inch  one  way  or  the 
other,  which  the'  supply  house  never 
had;  hence  delay,  large  stocks,  loss. 
They  cut  out  all  of  the  nonsensical 
variations  and  simplified  the  roll,  I  be- 
lieve, to  three  widths.  The  same  as 
to  the  length  and  width  of  a  bath  tub 
Then,  of  course,  if  the    association 


wants  to  go  further  than  simplifying 
its  product,  it  can  bring  about,  as 
has  been  done,  a  uniformity  of  raw 
materials  in  order  to  facilitate  intelli- 
gent buying.  If  the  raw  material 
dealers  have  an  association,  get  them 
to  apply  to  their  product  the  same 
simplification  that  the  manufacturers 
have  applied  to  theirs,  and  the  pur- 
chasing agents  of  the  manufacturers 
will  enjoy  the  same  benefits  as  the 
customers  of  the  manufacturers  enjoy 
through  the  dealing  in  standard  arti- 
cles, whether  they  are  raw  material  or 
convei;^ng   products. 

There  is  one  caution,  however,  as 
regards  simplification  which  trade 
associations  must  bear  in  mind,  and 
that  is  in  establishing  their  standards 
that  they  do  not  build  up  so-called 
"trade  customs"  which  impose  a  uni- 
form differential  or  cost  for  a  special 
service  on  all  mills  for  the  same 
thing,  ag  costs  in  the  different  mills 
will  vary.  You  cannot  agree  on  a 
part  of  the  price  or  cost  any  more 
than  you  can  agree  on  the  whole ' 
price  or  cost.  You  can,,  however,  in 
simplification  state  that  it  is  custom- 
ary to  make  an  extra  charge  and  then 
see  that  this  charge  is  tiased  on  your 
own  actual  cost  of  making  the  special 
run. 

But  why,  you  will  ask,  is  It  neces- 
sary to  do  all  this  through  a  trade 
association?  Wliy  not  let  the  Gov- 
ernment do  it?  There's  the  rub.  As 
Mr.  Peiker  has  pointed  out,  the  De- 
partment of  Commerce  will  assist  in- 
dustries in  simplifying  their  products, 
but  does  not  wish  to  impose  itself  in 
a  bureaucratic  way  in  this  or  any 
other  regard.  No,  the  manufacturers 
must  do  it  themselves.  It  must  be 
forced  upon  them  by  circumstances  or 
else  they  must  recognize  it  as  desir- 
able from  an  economic  standpoint. 
They  must  appreciate  that  simplifica- 
tion is  of  money-making  value,  and 
on  that  score  they  will  give'  it  favor- 
able consideration,  which  it  would 
never  receive  if  it  were  presented  to 
them  simply  as  a  good  Idea. 

And  it  manufacturers  are  to  •  co- 
operate in  simplifying  their  product, 
the  body  through  which  they  do  it  is 
their  trade  association.  There  is  a 
distinct  advantage  in  doing  it  them- 
selves rather  than  having  it  super- 
imposed upon  them  by  some  Govern- 
ment agency,  for  immediately,  and 
justly,  they  could  then  cry  "paternal- 
ism," "too  much  CTovernment  in  busl- 
nes.s,"  "bureaucracy,"  and  other  re- 
sentful epithets.  Manufacturers  will 
always  work  for  and  give  good  sup- 
port to  something  which  they  have 
done   themselves  and  will   vigorously 


oppose  the  very  same  thing  if  they 
think  it  is  being  wished  on  them  from 
the  outside. 

The  usual  procedure  for  simplifica- 
tion by  an  association  is  to  appoint  a 
committee  of  practical  men  who  un- 
derstand all  phases  of  production  and 
distribution  and  who  are  bombproof 
to  adverse  criticism,  and  let  them 
study  the  situation  and  prepare  a  gen- 
eral recommendation.  Then  at  a 
meeting  the  members  are  given  an 
opportunity  to  discuss  it,  and  you  need 
never  fear  but  that  it  will  be  fully 
discussed.  And  you  need  not  think 
that  it  is  going  to  be  accomplished 
in  a  month  or  two,  as  it  is  a  process 
of  first  selling  the  idea,  of  educating 
the  members  into  adopting  it  ajid  then 
of  policing  it  until  it  is  a  fixed  prac- 
tice. But  once  it  is  in  practice  it  will 
prove  its  own  value  so  quickly  that 
there  will  never  be  a  question  in  the 
minds  of  the  members  but  that  sim- 
plification is  one  of  the  best  things 
they  ever  did. 

However,  let  nie  caution  any  trade 
association  or  especially  its  committee 
on  simplification  not  to  attempt  to 
carry  the  matter  too  far.  All  that  is 
necessary  is  to  simplify  on  .  funda- 
mentals, which  is  all  that  is  necessary 
to  do  and  all  that  the  Department  of 
Commerce  asks  the  manufacturers  to 
do.  If  you  try  to  regulate  the  mix- 
tures of  elements  and  the  artisanship 
or  expert  ability  which  make  up  a 
product  and  give  it  its  qualii;y  and 
individuality,  you  will  immediately 
find  each  manufacturer  lustified  in 
saying  that  the  association  or  Govern- 
ment is  trying  to  ruin  his  product. 

Simplification  need  not  destroy  in- 
dividuality of  product,  as  you  can  have 
standard  weights,  sizes,  and  general 
designs,  just  as  much  as  we  all  have 
standardized  parts  to  our  faces  and 
jet.  (hank  the  Lord,  how  few  people 
look  alike.  It  is  the  individuality  be- 
hind the  face  that  rnakes  us  look  dif- 
ferent from  one  another,  and  it  is  the 
individuality  behind  the  product  that 
makes  it  a  little  d:*?'-ent  from  the 
other  standard  products  and  which 
gives  its  producer  his  selling  points. 

The  main  advantage  to  an  industry 
for  its  association  to  bring. about  sim- 
plification of  its  product  is,  .as  Mr. 
Feiker  ipentioncd,  that  it  eliminates 
waste.  Just  as  ine  ?edera,tea  Amer- 
ican Engineering  Societies,  of  which 
Mr.  Hoover  was  chairman,  made  an 
investigation  on  the  waste  in  various 
industries  and  showed  how  it  could 
be  eliminated  by  simplification,  so  It 
Is  possible  for  a  trade  association,  If 
it  ha.s  not  already  done  so,  to  take 
up  this  idea  which   has   been  so  ably 


CO-OPERATIVE   COMPETITION 


advocated  by  our  Secretary  of  Com- 
merce and  apply  it  to  Its  industry. 

Mr.  Hoover  Is  a  practi-'ial  engineer, 
who  never  lets  theory  interfere  with 
getting  practical  results  and  he  can 
appreciate  in  the  effort  which  he  Is 
making  in  the  Department  of  Com- 
merce what  all  this  means  to  the 
American  industry.  That  surely  ought 
to  be  proof  enough  for  any  trade  as- 
sociation to  take  it  up.  But  if  you 
want  further  proof  go  to  the  trade 
associations  which  have  brought  about 
simplification  by  cooperative  effort  and 
you  will  find  the  highest  satisfaction 
on  the  part  of  their  members. 

But  if  you  want  to  be  sold  right 
here  and  now  on  the  benefits  of  sim- 
plification, 1  know  of  no  better  way 
than  to  close  my  argument  with  brief 
facts  in  outline  form  as  prepared  by 
the  Chamber  of  Commerce  of  the 
United  States  of  America,  as  follows: 

Gains  to  Manufacturer 

(1)  Less  capital  tied  up  in 

(a)  Raw  materials, 

(b)  Semi-finished  stock, 

(c)  Finished  stock, 

(d)  Jigs,     dies,     templates,     and 

special  machinery, 

(e)  Storage  floor  space, 

(f)  Repair  parts. 

(2)  More  economical  manufacture 
through 

(a)  Larger  units  of  production; 
reduced  number  of  manufactur- 
ing units, 

(b)  Longer  runs,  less  frequent 
change, 

(c)  Higher  rates  of  individual  pro- 
duction, 

(d)  Accurate  and  proper  estimat- 
ing for  production, 

(e)  More  effective  stock  control, 

(f)  Better  and  more  simplified  in- 
spection, 

(g)  Less  idle  equipment;  reduced 
amount  of  equipment. 

(h)  Greater  ease  in  securing  raw 
materials,  and  conserving  raw 
products, 

(i)  Cheaper  handling  of  stock, 

(j)  Reduced  clerical  overhead, 

(k)  Simplified  and  more  accurate 
costing  system, 

(1)  Elimination  of  waste  in  experi- 
mentation and  design, 

(m)  Standardized  material  Inven- 
tories. 
(t)  More  eflScient  labor  due  to 

(a)  Making  training  of  employees 
more  simple, 


(b)  Better  earnings,  through  In- 
creased individual  production 
made  possible  by  longer  runs, 

(c)  Happier  and  more  contented 
workmen, 

(d)  Skill  increased  by  repetitive 
process, 

(c)  Less  labor  idle  from  preventa- 
ble causes. 

(f)  More  permanent  employment 
as  contrasted  to  present  season- 
al employment, 

(g)  Less  difficulty  in  getting  help. 

(4)  Better  service  to  the  trade  in 

(a)  Better  quality  of  product, 

(b)  More  prompt  delivery, 

(c)  Decreased  quantity  of  sizes  of 
packing  required, 

(d)  Fewer  packages  broken  In 
transit, 

(e)  Less  chance  of  errors  in  ship- 
ment, 

(f)  Less  obsolete  material. 

(5)  More  efficient  sales  force. 

(6)  Increased   rate    of   turnover. 

(7)  Intensified  sales  momentum. 

(8)  Easier  financing. 

(9)  Fewer  factory  shutdowns. 

(10)  Compels  attention  to  individu- 
ality in  those  features  where  there 
should  be  individuality,  by  preventing 
attempts  at  individuality  In  those  fea- 
tures where  individuality  Is  super- 
ficial and  useless  and  where  standardi- 
zation and  quality  should  prevail. 

(11)  Earlier  plans  and  schedules. 

(12)  Decrease  in  number  of  produc- 
tion processes. 

Gain  to  Wholesaler  and  Retailer 

(1)  Increased  rate  of  turnover  due  to 

(a)  All  live  numbers;  none  obsolete, 

(b)  Elimination     of     slow      moving 

stock, 

(c)  Staple  line,   easy  to   buy,   quick 

to  sefl, 

(d)  More  effective  sales  force, 

(e)  Greater    concentration    of    sales 

on   fewer  items, 

(f)  Standard      patterns       that      are 

proved  best  sellers. 

(3)  Decreased  capital  investment  in 

(a)  Stock  on  hand, 

(b)  Repair  parts  on  hand,   * 

(c)  Storage  space  required. 

(3)  Less  stock  depreciation  and  ob- 
solescence. 

(4)  Decreased  overhead  on 

(a)  Handling  charges, 

(b)  Clerical  work. 

(6)    Better  service  through 
(a)   Lower  prices, 


35 

(b)  Quiciv'rr  .mi  niore  reliable  de- 
liveries. 

Gains  to  the  Consumer 

(1)  Better  prices  than  would  other- 
wise be  po.ssible. 

(2)  Better  quality  of  product  through 
ability  of  manufacturer  to  concentrate 
on  better  design  and  through  the  re- 
duction of  manufacturing  expense. 

(3)  Better  service  on 

(a)  Complete  products, 

(b)  Repair  parts, 

(c)  Prompt  deliveries. 

Industrial  Significance 

The  important  role  which  standard- 
ization plays  in  industrial  evolution  is 
not  generally  appreciated.  Following 
are  significant  aspects  of  standardiza- 
tion when  carried  out  on  a  sound 
engineering  basis: 

(1)  It  enables  buyers  and  sellers  to 
speak  the  same  language,  and  makes 
it  possible  to  compel  competitive  sell- 
era  to  do  likewise. 

(2)  Better  quality  of  product  through 
ability  of  manufacturer  to  concfn- 
trate  on  better  design  and  through 
the  reduction  of  manufacturing  ex- 
pense. 

(3)  It  lowers  unit  cost  to  the  pub- 
lic by  making  mass  production  pos- 
sible, as  has  been  so  strikingly  shown 
in  the  unification  of  Incandescent 
lamps  and  automobiles. 

(4)  By  simplifying  the  carryln*  of 
stocks,  it  makes  deliveries  quicker  and 
prices  lower. 

(5)  It  decreases  litigation  and  other 
factors  tending  to  disorganize  indus- 
try, the  burden  of  which  ultimately 
falls  upon  the  public. 

(6)  It  eliminates  indecision,  both  In 
production  and  utilization — a  proHUt 
cause  o£  inefficiency  and  waste. 

(7)  It  stabilizes  production  and  em- 
ployment, by  broadening  the  possible 
market,  and  by  making  it  safe  for  the 
manufacturer  to  accumulate  stock 
during  periods  of  slack  orders  to  an 
extent  which  would  not  be  safe  with 
an   unstandardized   product. 

(8)  By  focusing  on  essentials.  It 
decreases  selling  expense,  one  of  the 
serious  problems  of  our  economic 
system.  •         • 

(9)  By  concentrating  on  fewer  tinea, 
it  enables  more  thougnt  and  energy 
to  be  put  into  designs,  so  that  they 
will  be  more  efiBcient  and  economical 


S6 


co-opp:rative  competitio:n 


March  31,  1922 


HELPS  SMALL  MAN  IN  BUSINESS 

FIGHT 


iTrade  Group  Keeps  Him  Posted  on  Market — Reports  on  C-mditions 

Carefully  Compiled 


By  PAUL  T.  CHERINGTON 

Secretary-Treasurer  National  Association  of  Wool  Manufacturers 


It  is  said  that  Pancho  Villa  when 
at  the  height  of  his  military  career 
was  told  that  some  proposed  action 
was  contrary  to  the  accepted  rules  of 
warfare.  At  this  his  simple,  direct- 
acting  soul  was  stirred  to  laughter  and 
astonishment.  Was  it  possible  that 
anybody  could  seriously  propose  ham- 
pering warfare  by  rules?  Perhaps  no 
einglo  episode  in  Villa's  life  as  it  has 
been  related  shows  more  clearly  the 
backwardness  which  made  his  end 
certain.  His  sixteenth  century  ideas 
of  war  were  barbaric. 

Associations  for  trade  purposes  may, 
in  some  cases,  have  defects,  and  they 
may  need  to  have  some  of  their  activ- 
ities judged  scrupulously,  but  they  are 
increasingly  valuable  factors  in  the 
public  interest.  In  the  long  run  bhey 
will  justify  themselves  on  this  one 
ground  alone — their  value  to  the  pub- 
lic. 

There  is  no  question  as  to  their  value 
to  the  several  trades  they  are  de- 
signed to  serve.  To  be  sure,  many 
members  of  a  trade  do  not  belong  to 
their  trade  association;  others  go  in 
and  come  out  at  intervals.  But  there 
is  general  agreement  as  to  the  value 
of  associations  to  the  trades,  or  in- 
dustries. 

Their  value  to  the  general  public 
is  not  so  obvious.  For  that  r«aaoa  H 
la  my  purpose  t!»  eoealder  that  aspect 
of  the  case  slone,  and  to  call  atten- 
tion to  the  puijftc  value  of  an  unques- 
tionable ax'Wmplishment;  namely,  their 
contribution  in  establishing  fair  and 
equitable  rules  of  intelligent  compe- 
tition. 

The  Sherman  law  with  its  vague- 
ness as  to  what  constitutes  either 
"conspiracy"  or  "restraint"  has  never 
done  anything  so  constructive  in  the 
public  interest  as  the  tonine  up  of 
standards  of  business  ethics,  the  estab- 
lishment of  rules  and  regulntions  o! 
conduct,  the  determining  of  what  is 
And  what  is  not  fair,  which  are  among 


the  achievements   of   these   voluntary!  make  joint  action  compulsory  in  many 


associations  of  competitors.  Much  of 
the  cruelty,  cunning  and  ruthlessness 
of  competitive  warfare  has  been  done 
away  with,  and  the  credit  for  this  be- 
longs to  the  associations  and  not  to 
regulative  laws. 

Competition  has  become  more  intel- 
ligent through  association  effort.  One 
of  the  chief  advocates  of  associated  et. 
forts  makes  this  clear.  He  recalls  how 
two  runners,  by  competing  in  plain 
sight,  gauge  one  another's  strength 
and  resources,  and  one  wins  the  rare 
with  the  proper  use  of  his  powers.  He 
then  shows  how  much  more  real  this 
contest  is  than  one  in  which  neither 
contestant  knows  what  the  other  i.s 
doing.     He  continues: 

"To  make  the  point  still  clearer — 
suppose  the  two  "-unnors  start  at  'he 
same  moment  on  the  same  track  a;; 
under  the  first  hypothesis,  and  for  the 
first   half   they   are   side   by   side,   and 


such  instances;  otherwise,  the  power- 
ful competitors  have  the  ability  to 
acquire  and  arrange  the  necessary 
knowledge,  and  the  smaller  ones  lack 
it.  The  results  are  bad  for  every- 
body, and  particularly  tor  the  small 
competitors. 

Associated  effort  in  industry  and 
trade  will  some  day  be  regarded  as 
being  as  useful  and  natural  a  form 
of  joint  effort  as  any  other  form  of 
civilized    joint   activity. 

Finally,  in  the  emphasis  they  have 
placed  on  the  value  of  real  facts — 
ligiires  which  really  represent  condi- 
tions— the  contribution  of  the  associa- 
tions has  been  large  and  socially  use- 
ful. Some  men  can  do  business  satis- 
factorily on  "hunches."  Most  men 
cannot  safely  depend  on  anything  but 
facts.  No  one  element  in  American  busi- 
ness is  in  any  way  comparable  with 
the  ^sociations  in  the  energy  and  skill 
with  which  important  and  useful  fact 
material  has  been  prepared  and  put 
into  the  hands  of  those  who  could 
use  it  to  the  be.«t  public  advantage. 

In  many  ca-ses  the  work  begun  by 
the  associations  has  been  taken  up 
liy   the   Federal   Government,  and   this 


the  competition  is  real  and  keen.     At  |  transfer    has    been     with    the    willing 

sanction  of  the  associations.  If  the 
trade  associations  of  the  country  had 
to  defend  themselves  solely  on  the 
strength  of  what  they  have  done  for 
Increasing  respect  for  carefully  com- 
piled facts,  their  past  record  would 
be  amply  justified. 

In  brief,  then,  the  trade  associa- 
tions of  the  country  have  stood  ror 
better,  safer,  more  humane,  and  more 
intelligent  methods  of  doing  business. 
Their  efforts  have  been  in  line  with 
sane,  civilized  human  progress.  They 
have  been  in  accord  with  similar 
progress  in  almost  every  line  of  joint 
human    endeavor. 

The  evils  of  guerilla  competition  will 
some  day  be  recognized  and  the  con- 
structive value  of  the  association  as 
a  regulator  of  excesses  in  commer- 
cial warfare  will  be  properly  appre- 
ciated: There  may  be  some  dangers 
to  be  guarded  against,  but  the  in- 
dustries of  the  country  as  a  rule  have 
as  fair  a  social  sense  as  any  part  of 
society.  They  can  be  e.vpected  to 
separate  the  good  from  the  bad,  for 
they  have  already  been  doing  this. 
The  main  danger  to  the  general  pub- 
lic interest  in  the  matter  is  that  there 
may  be  too  general  adherence  to  six- 
teenth century  ideas  of  the  nature  ot 
warfare. 


the  end  of  the  half  mile  the  track 
divides,  the  diverging  lines  are 
separated  by  a  barrier  so  high  neither 
runner  can  know  what  the  other  is 
doing.  What  is  the  inevitable  result? 
From  the  moment  they  lose  sight  of 
one  another  all  real  competition 
ceases,  f-ach  man  puts  forth  all  his 
strengt  .  nd  runs  until  he  collapses. 
That  is  false  or  pseudo  competition." 

Equalizes  Competitive  Ability 

Joint  action  in  attack  on  common 
problems  of  an  industry  has  gone  far 
towards  equalizing  the  competitive 
ability  of  the  small  and  the  large  com- 
petitor. Fear  of  one's  industrial 
neighbors  is  no  more  wholesome  or 
salutary  in  itself  than  fear  of  one's 
physical  niii'4.''"^rs. 

Common  i4BlK»-ms  of  un  industry 
not  only  la.i  1'*  best  attat'ked  by 
common  action;  from  every  possible 
public  point  of  view  they  ought  to  be 
altacked  in  this  particular  way.  It 
would    be    in    the    public    interest    to 


CO-OPERATIVE    COMPETITION 


37 


'April  I,  1922 

GARMENT  MEN  CUT  COSTS  THRU 
THE  TRADE  GROUP  PLAN 


How  System  Works — Uniform  Cost  Accounting   Provided  for  AU 

Needle  Trades — Supplies  Purchased  for  Members  at  Low 

Rates— Income  Tax  Returns  Checked  Up 


By  A.  F.  ALLISON 

Of  the  International  Association  of  Garment  Manufacturers 


The  ti-ade  association,  at  Its  beat, 
represents  cooperative  brain  power. 
Behind  the  scenes  in  modern  indus- 
trial life,  we  find  conditions  increas- 
ingly complex.  But  in  front  of  the 
curtain  Mr.  and  Mrs.  Average  Man 
and  Woman,  and  their  children  are 
fed,  clothed,  amused,  transported  from 
one  part  of  the  country  to  another, 
with  ever  increasing:  ease.  What  if 
each  one  of  us,  as  a  consumer,  were 
to  be  asked  to  produce  all  our  own 
food,  make  all  our  own  clothing  from 
fabrics  also  produced  entirely  through 
our  own  efforts,  supply  our  own  means 
of  transportation,  and,  in  short,  du- 
plicate, by  our  own  efforts,  any  or 
all  of  the  necessaries  of  modern  lifi? 

We  would  be  staggered  at  the  prob- 
lem confronting  us,  and  .several  life- 
times would  be  too  Ehort  for  us  to  gain 
skill  sufficient  for  the  thousands  of 
tasks  which  are  an  industrial  com- 
monplace. It  we  were  not  entirely 
isolated  from  other  men  and  women 
we  would  instinctively  turn  towards 
cooperation  as  the  only  way  out  of 
an  impossible  situation.  Under  primi- 
tive conditions  we  would  realize  the 
true  essence  of  cof.)peration,  its  neces- 
sity it  we  were  to  regain  anf  of  the 
question  as  to  cause  or  source. 

Any  problem  can  be  solved  most 
conveniences  and  living  conditions 
readily  liy  reducing  it  to  fundamen- 
tals. The  work  of  trade  associations 
Is  based  on  the  fact  that  no  one 
man  or  woman  can  in  a  lifetime 
store  up  sufBcient  knowledge  con- 
cerning any  industo'.  working  alone, 
to  equal  the  progress  made  by  a  group 
of  men  and  women  who  share  their 
ideas  and  cooperate  to  Improve  their 
skill  and  judgment. 

Competition  which  is  based  on 
trickery  does  not  thrive  in  an  at- 
mosphere of  cooperation.  A  horse 
trader  cannot  afford  to  expose  his 
tricks  to  his  competitors,  becauEe 
bis    tricks    arc    his    stock    in    trade. 


But  a  man  who  makes  a  real  vocation 
of  breeding  horses  for  the  market 
can  afford  to  meet  with  his  competi- 
tors and  discuss  his  methods  and 
theirs,  because  if  he  is  really  eincere 
:n  his  work  he  will  not  only  give,  but 
he  will  get  Information,  and  even  dis- 
counting the  information  others  will 
give  him,  he  will  gain  from  the  very 
effort  he  makes  clearly  to  state  to 
others  what  he  himself  knows.  So 
he  has  two  strings  to  his  bow;  his 
self-improvement  is  thereby  doubly  in- 
sured. The  horse  trader  is  a  spurious 
sport;  the  horse  breeder  is  a  true 
sportsman. 

There  are  r.i.  :  y  "horse  traders"  in 
other  lines  of  business  to-day.  But, 
fortunately,  there  are  far  more  "horse 
breeders."  The  sportsmen  outnum- 
ber the  aports,  muck-rakers,  and  pro- 
fessional pessimists  to  the  contrary. 
And  the  sportsmen  are  the  backbone 
of  the  trade  association  movement. 

To-day  there  are  many  organiza- 
tions like  the  International  Associa- 
tion of  Garment  Manufacturers, 
founded  and  conducted  on  the  prin- 
ciple of  cooperative  education  and 
economy.  To  establish  a  medium  for 
sharing  ideas  with  one  anoiher  is  the 
glad  privilege  of  business  men  whose 
minds  are  open  for  improvements  and 
progress.  Organization  founded  on 
narrow  visioned  price  and  profit  con- 
siderations, no  matter  how  cleverly 
their  leal  character  may  be  disguised 
by  high-priced  lawyers,  and  no  matter 
how  limitless  the  funds  greed  places 
at  their  disposal,  must  grow  weaker 
from  dissension  within  and  attacks 
from  without. 

Recently  alarums  have  resounded, 
much  agitation  has  been  heard  con- 
cerning "open  price"  activities  of 
trade  associations.  Let  all  bo  cei'tatn 
of  what  they  are  discussing.  Ope»i 
shop  advocates  have  learned  the  bit- 
ter lesson  that  it  does  not  pay  to  dis- 
cuss a  term  without  care  in  definition. 


The  term  "open  price"  with  quotation 
marks  behind  and  before  may  really 
mean  closed  price,  in  the  same  way 
that  the  term  "open  shop"  has  been 
misused  to  describe  "closed  shop" 
conditions. 

It  would  be  witless  to  say  that 
the  present  discussion  concerning 
"open  price"  activities  will  not  help 
or  harm  trade  associations.  Public 
misunderstandings  are  always  danger- 
ous. But  far  more  dangerous  to  the 
welfare  of  trade  associations  Is  the 
Insidious  propaganda  of  "easy-money" 
advocates.  Selfish  price  agreements 
are  Inevitably  broken  for  the  tempo- 
rary greater  advantage  of  the  indi- 
viduals concerned.  And  when  such 
price  agreements  fail,  as  they  always 
must  in  a  declining  market,  those  who 
were  misled  Into  this  spurious  form 
of  cooperation  thenceforth  refuse  to 
participate  in  clean  cooperative  effort, 
for  a  taste  of  forbidden  fruit  has 
weakened  their  will  power  and  the 
mental  effort  required  for  educational 
cooperation   is  beyond  them. 

But  this  is  not  a  weakness  in  trade 
associations  so  much  as  it  is  a  weak- 
ness of  human  nature,  with  whicls 
We  must  contend  m  any  rorm  of  en- 
deavor. 

There  is  a  certain  form  of  weakness, 
however,  which  trade  associations  will 
do  well  to  avoid,  which  is  derived  from 
their  strength.  Many  men  belong  to 
trade  associations  almost  as  a  matter 
of  habit.  Yearly  dues  are  paid  as  an 
established  custom  in  business.  The 
need  for  some  sort  of  a  trade  organi- 
zation is  so  thoroughly  recognized  that 
the  specific  application  of  trade  asso- 
ciation work  to  the  individual  busi- 
ness is  often  disregarded. 

This  breeds  carelessnes.s  in  the. 
handling  of  association  funds.  Every- 
body's money  is  nobody's  worry.  This 
should  i.ot  be.  Every  cent  paid  for 
trade  association  membership  Is  a  tax 
on  business.     It  is  a  useful  or  an  ei- 


3S 


CO-OPERATIVE   COMPETITION 


•^  trava£a.nt  expenditure  In  proportion 
to  the  value  received.  It  may  be  ex- 
travagantly small  as  well  as  extrava- 
gantly large.  Some  men  are  disposed 
to  false  economies.  They  will  send 
a  boy  to  do  a  man's  job.  and  then 
wonder  why  they  lose  many  times 
over  what  they  tried  to  save  by  cut- 
ting their  expenses  below  a  productive 
basis.  A  trade  association  which  truly 
serves  is  Worthy  of  its  hire. 

Service  is  usefulness.  A  trade  as- 
sociation can  be  useful  in  many  ways. 
Its  greatest  usefulness  to-day  is  to 
help  cut  costs  of  doing  business. 
Everything  useful  has  a  fair  price  and 
value.  But  there  seldom  is  a  time 
when  such  fair  price  and  value  can 
be  readily  determined.  Without  en- 
tering the  realms  of  activity  sacred 
to  the  memory  of  the  Pooh-Bah  of 
Open  Price,  a  trade  association  may 
perform  a  very  useful  tunction  in 
helping  its  members  to  maintain  sane, 
well-balanced  judgment  as  to  facts 
and'  conditions,  when  everything  in 
a  business  way  seems  flying  to  ex- 
tremes. 

A  trade  association  may  be. well  or- 
ganized, to  all  outward  appearances, 
to  be  of  constructive  usefulness  to  Its 
business  community,  and  yet  to  a  cer- 
tain extent  fail  to  be  most  useful  be- 
cause of  illogical  lack  of  sound,  busi- 
ness principles  and  practices  in  the 
manasrement  of  its  own  funds.  Here 
enters  the  old  argument  between  the 
"promoter  type"  and  the  "reason-why 
typo"  of  business  man. 

Unfortunately,  trade  associations 
seem  to  require  more  promotion  ac- 
tivities than  management.  Business 
men  do  not  spring  up,  fully  armed,  to 
defend  and  to  uphold  their  trade  as- 
sociation. Honey  catches  more  flies 
than  vinegar,  but  the  men  who  spe- 
cialize in  Grade  A  honey,  guaranteed 
to  increase  association  membership 
and  income,  are  not  the  kind  of  men 
Who  like  to  keep  close  tab  on  cost 
sheets. .. 

In  Garment  Industry 

14  tjie  case  Of-the  International  As- 
sociation, of  Garment  Manufacturers, 
we  have  made  a  virtue  of  a  necessity, 
such  being  a  not  uncommon  happen- 
ing in  other  walks  of  life.  Our  dues 
income,, based  on  a  flat. rate  of  $50  per 
member,  is  strictly  limited.  Our  men- 
bership  is  widely  scattered.  We  are 
not  a  professionalized  organization:  in 
other  words,  our  members  do  not  pay 
their  dues  for  credit  bureau  sei-vice; 
neither  are  we  necessary  to  them  for 
collective  bargaining  with  labor,  for 
we  are  strictly  a  trade  organization 
comprising  both  union  and  non-union 
manufacturers.    And  we  have  entirely 


shunned  even  the  most  innocent  form 
of  "open  price"  activity. 

It  is  evident  that  we  have  been 
obliged  to  lead  the  simple,  frugal  life 
to  which  all  business  is  now  turning. 
And  the  first  principle  of  the  frugal 
life  is  to  know  why,  whei-e,  and  what 
for  before  you  spend  your  money. 
The  second  principle  is  to  be  sure 
you  get  what  you  pay  for. 

And  therefore  we  developed  our 
cost  accounting  plan,  crude  but  work- 
able. We  have  been  told  that  tnis  is 
the  first  time  on  record  a  trade  asso- 
ciation has  taken  its  own  medicine  be- 
fore preaching  cost  accounting  to  its 
membership.  Whether  or  not  that  be 
true,  we  are  satisfied  that  we  could  not 
have  made  progi-ess  and  attained  our 
present  position  in  the  trade  if  we 
had  not  based  our  work  upon  accu- 
rate knowledge  of  our  costs. 

Thus,  in  developing  our  service-use- 
fulness to  our  members,  while  we  have 
been  tempted,  at  times,  to  try  out 
more  or  less  Utopian  schemes,  in  the 
main  we  have  kept  our  cost  figures 
in  mind  and  have  confined  ourselves 
to  work  which  is  not  only  useful  but 
which  can  be  justified  on  the  basis  of 
results  per  dollar  invested. 

We  believe  that  a  trade  association, 
properly  conducted,  is  a  real  1,000  per 
cent  investment.  In  the  first  place,  it 
is  a  non-profit  making  institution.  In 
the  second  place,  if  it  deserves  and 
gets  the  confidence  of  its  members, 
it  has  access  to  information  and 
possesses  an  advisory  staff,  composed 
of  member-executives,  which  cannot 
be  hired  by  the  largest  corporation. 

But  good  advice,  precious  and  rare 
though  it. may  be,  is  hard  to  rate  in 
dollars  and  cents,  so  we  constantly 
endeavor  to  show  our  members\  that 
we  can  be  useful  to  them  in  ways 
which  mean  definite  pocketbook  or 
checkbook  savings. 

Saved  Money  for  Members 
For  example,  we  register  trade- 
marks in  the  United  States  Patent 
Office  without  service  charge.  Over  a 
hundred  members  found  us  useful  in 
this  respect  last  year.  And  we  do  not 
let  them  overlook  the  fact  that  they 
saved  enough  on  one  or  two  such  Jobs 
to  equal  their  year's  dues. 
.We  check  up  a  member's  Federal 
tax  returns  and  advise  him  if  it  is 
over-paid  or  under-paid.  In  doing  this 
we  give  double  service,  as  we  are  use- 
ful not  only  for  the  work  we  actually 
do.  but  also  because  we  keep  our 
members  out  of  the  clutches  of  the 
income  tax  "experts."  who  will  usual- 
ly promise  much  and  do  little  for  a 
tee  of  $25  to  $150,  payable  in  advance. 


We  were  useful  over  $60,000  worth  to 
one  member,  who  had  over-paid  his 
taxes   to   that   extent. 

And  we  find  also  that  edvLCating  the 
taxpayer  is  an  important  job  for  a 
trade  association,  because  the  Depart- 
ment of  Internal  Revenue  has  fount! 
this  task  almo.st  an  impossibility. 
Government  officials  appreciate  and 
gladly  cooperate  with  any  well 
planned  and  honest  attempt  along 
such    educational    lines. 

We  make  ourselves  useful  in  traffla 
work.  We  do  not  try  to  duplicate 
the  work  of  local  traffic  bureaus,  but 
we  have  found  a  great  field  of  use- 
fulness in  respect  to  general  traffic 
matters,  all  .of  which  have  a  very 
specific  application  to  transportation 
costs  on  materials  and  finished 
products. 

In  the  export  field  we  are  useful  in 
a  definitely  practical  way.  We  tell  a, 
manufacturer  exactly  ,.'how  to  pack, 
label,  and  shin  goods  to  foreign  coun- 
tries; We  prepare  merchandising  data 
of  all  kinds,  including  lists  of  adver- 
tising mediums,  and  advertising  sug- 
gestions for  whatever  country  a  mem- 
ber may  inquire  about;  we  give  com- 
plete data,  credit  ratings,  and  other 
useful  information  concerning  pros- 
pective foreign  customers;  and  we 
furnish  accurate,  up-tc-date  lists  of 
prospective  customers  in  any  for- 
eign country, 

TtirougTi  our  factory  supply  depart- 
ment we  furnish  members  with  of- 
fice and  factory  supplies  at  prices 
which  demonstrate  actual  savings  of 
from  5  per  cent  to  25  per  cent  or 
more.  We  purchase  these  supplies  in 
wholesale  quantities,  on  open  market, 
at  lower  prices  than  individual  buyers 
could  obtain.  Almost  any  manufac- 
turer will  use  a  thousand  dollars' 
worth  of  factory  and  office  supplies  in 
a  year.  Buying  them  through  us 
as  an  association  member  he  saves  an 
average  of  at  least  10  per  cent.  That 
is  being  useful,  we  think — to  return 
to  a  member  $100  for  his  $50  yearly 
dues. 

Our  membership  list  covers  thirty- 
eight  States  and  four  Provinces  of 
Canada.  New  York  is  headquarters 
for'  piece  goods,  the  most  important 
raw  material  for  the  needle  trades. 
Compai'atively  few  manufacturers  can 
afford  to  maintain  New  York  buying 
hc-dquarters  and  yet,  without  some 
means  for  keeping  in  clcse  personal 
touch  with  this  primary  market,  they 
are  handicapped.  Our  textile  depart- 
ment serves  our  members  as  an 
acceptable  substitute  for  a  resident 
buying  partner.  Also,  through  this 
department   we   facilitate   sale   or   ex- 


CO-OPERATIVE   COMPETITION 


39 


change  6t  surplus  piece  goods,  aided 
by  regular  bulletin  service;  test 
fabrics,  search  the  market  for  spe- 
cial materials,  and  in  many  ways  often 
save  a  member  the  expense  of  a  spe- 
cial trip  to  the  market. 

All  the  activities  thus  far  men- 
tioned, while  useful,  are  more  or  less 
supplementary  to  the  basic  research 
and  educational  work  for  which  this 
association  was  founded.  We  antici- 
pated the  present  marked  tendency  of 
industrial  engineering  firms  to  work 
with  and  through  trade  organizations, 
by  setting  up,  three  years  ago,  our 
Bureau  of  Factory  Practice  and  In- 
dustrial Relations,  dedicated  to  scien- 
tific research  and  exposition  of  stand- 
ard mantfacturing  methods  in  the 
needle  trades.  "" 

We  bought  brains  cooperatively  and 
thus  made  available  to  the  large  num- 
ber of  small  manufacturers  the  best 
and  highest  priced  talent  at  a  co- 
operatively low  fee. 

Because  the  "bureau,"  as  a  part  of 
the  associa;tion  work,  is  a  non-profit 
making  institution,  and  also  because 
it  shares  our  headquarters  and  thus, 
at'  no  sacrifice  in  ■  eflSoiency,  is  con- 
ducted at  a  comparatively  low  cost, 
we  are  able  to  offer  this  industrial 
engineering  service  for  a  year  for 
$100.  Member  subscribers  receive  at 
least  twenty-five  regular  research  re- 
ports plus  a  reasonable  number  of 
special  reports.  Several  of  our  re- 
ports, if  offered  commercially,  would 
alone  command  a  price  of  $100. 

Cost  Accounting  System 

About  two  years  ago  we  organized 
a.  uniform  cost  accounting  commit- 
tee. After  nearly  a  year  of  continu- 
ous study  and  investigation  we  adopt- 
ed a  plan,  which  has  since  been 
termed  one  of  the  most  practical  and 
effective  yet  evolved  for  this  type 
of  work. 

Probably  no  committee  ever  faced 
a  more  hopeless  situation.  The  nee- 
dle trades  are  fairly  chaotic,  from  the 
standpoint  of  cooperation.  There  is 
Uttle  fraternizing  among  the  various 
branches  of  the  industry,  except  those 
Which  havB  become  affiliated  with  our 


association.  And  yet  our  commit- 
tee felt  that  it  would  fall  below  its 
self-imposed  standard  of  achieve- 
ment if  it  could  not  develop  and  bring 
forth  a  uniform  cost  accounting  plan 
which  would  be  applicable  to  all, 
rather  than  a  special  few,  of  the 
several   branches   of   the   industry. 

For  years  we  have  urged  general 
recognition  of  the  community  of  in- 
terest which  underlies  surface  differ- 
ences between  all  the  apparel,  clothing 
and  garment,  or  needle  trades  manu- 
facturers. Furthermore,  we  believe  in 
the  industrial  economy  of  non-duplica. 
tion  of  effort.  The  various  associa- 
tions affiliated  with  us  do  not  each, 
separately,  conduct  work  which  can 
better  be  done  forall  through  a  central, 
ized  department.  And  it  was  in  firm 
accordance  with  this  principle  that 
our  uniform  cost  committee  proceed- 
ed in  its  undertaking. 

Miller,  Franklin,  Basset  &  Co.,  cost 
engineers,  were  engaged  to  prepare  a 
uniform  cost  system,  to  set  standards 
for  cost  accounting  in  the  needle 
trades,  which  would  apply,  with  the 
always  necessary  minor  changes,  to 
any  plant  producing  garments  of  any 
type.  This  has  been  done  and  the 
finished  work  is  being  offered  to  the 
entire  industry. 

But  we  are  not  satisfied  to  do  a 
good  general  job.  Our  habit  of  figuring 
results  in  dollars  and  cents  has  a  firm 
hold  on  us,  so  we  go  a  step  further. 
We  have  arranged  to  buy  cooperative- 
ly, for  a  group,  or  an  individual,  ex- 
pert cost  installation  service,  at  a 
great  saving  in  price.  We  supply  work, 
men  as  well  as  standards  for  the  job 
of  cost  installation. 

Send  Out  Trade  Letter 

I  might  go  on  multiplying  instances 
wherein  we  have  proved  our  -useful- 
ness. I  have  not  yet  touched  upon 
our  trade-service  letter,  for  example, 
although  this  business  digest,  issued 
each  week,  is  welcomed  and  consid- 
ered very  useful  by  our  members. 

Our  departmentalization  might  also 
be  of  interest,  as  it  has  a-  direct  bear- 
ing upon  our  capacity  for  usefulness. 
Questions  have  been  raised  as  to  the 


value  of  our  cost  system  to  uj. 
whether  we  do  not  go  too  much  into 
detail  when  we  charp-e  off  our  rent,  on 
a  floor  space  basis,  to  departments: 
when  we  keep  job  tickets  showing  la- 
bor and  material  costs  on  our  mimeo- 
graph work;  when  we  apportion  dur 
payroll  to  departments;  when  we  es- 
tablish a  centoal  purchasing  depart- 
ment and  insist  that  '  all  purchase 
requisitions  shall  be  signed  by  the  as- 
sociation executive  in  general  charge. 
Men  unfamiliar  with  our  organiza- 
tion have  told  me  that  it  must  cost 
us  far  more  than  we  save  to  check  and 
compile  these  cost  records.  When 
manufacturers  are  urged  to  install 
adequate  cost  metho(^s  they  often 
make  the  same  objection.  But  if  our 
experience  is  any  criterion,  no  man 
need  hesitate  over  the  cost  of  instal- 
ling simple  business  records  as  a  basis 
for  cost  control. 

An  association  office  is  the  last  placs 
in  the  world,  unfortunately,  in  whicTi 
many  business  men  would  look  for  a 
cost  accounting  installation,  and  yet  we 
avoid  "red  tape,"  get  good  results 
without  an  additional  clerk,  and  I  be- 
lieve it  really  costs  us  less  to  handle 
cur  business  right  than  it  would  if  we 
were  trying  to  operate  without  the 
centr.^I  control  established  through  our 
records. 

And  now  I  may  conclude  by  stating: 
my  firm  belief  that  sound,  sane  prog- 
ress in  the  industrial  life  of  this  coun- 
try depends  to  no  small  extent  upon 
the  right-minded  organization  and  com- 
petent management  of  our  trade  asso- 
ciations. Free  land  no  longer  provides 
an  outlet  for  the  individual  energy  of 
our  people.  We  are  groping  forward 
into  a  period  of  world-wide  competi- 
tion, rendered  all  the  more  severe  by 
constantly  improving  means  and 
methods  of  transportation.  If  we  are 
to  continue  to  avoid  encouraging  great 
combinations  of  capital,  such  as  are 
encouraged  in  all  competing  countries, 
and  if  we  are  to  continue  to  develop 
the  individual  type  of  American  busi- 
ness enterprise,  we  must  more-  and 
more  encourage  cooperative  competi- 
tion, as  exemplified  in  our  trade  asso- 
ciations, or  make  way  for  a  mors  effi- 
cient order. 


N 


40 


CO-OPERATIVE    COMPETITION 


WORLD'S  MARKETS  NEARER  TO 
TRADE  ASSOCIATIONS 


Trade  Groups  Extend  Selling  Field— List  of  Buyers  Abroad  Com- 
piled and  Basis  Established  for  Credit  Rating 


During  recent  years  leading  trade 
associations  have  found  many  oppor- 
tunities to  render  practical  service  for 
members  interested  in  the  foreign  field. 
Indeed,  any  industry  dependent  upon 
overseas  markets  for  raw  material  or 
as  an  outlet  for  its  finished  products 
would  find  value  in  such  a  service. 
Therefore  a  well  organized  offlce  to 
handle  problems  growing  out  of  inter- 
national trade  has  become  a  perma- 
nent feature  in  the  work  of  several 
prominent  associations. 

Heretofore  trade  bodies  accom- 
plished a  greac  deal  with  tlieir  own 
facilities.  Now  they  have  strong  sup- 
plemental aid  in  the  new  industrial 
divisions  of  the  Department  of  Com- 
merce, established  through  the  efforts 
of  Secretary  Hoover.  The.se  divisions 
will  not  replace  the  foreign  commerce 
functions  of  trade  associations.  They 
ara  designed  to  extend  their  work  by 
providing  additional  valuable  ■  services 
not  before  available  to  American  in- 
dustries. 

There  are  a  number  of  important 
foreign  activities  undertaken  by  trade 
associations  that  have  been  of  practi- 
cal Value  to  their  members,  and  it  is 
believed  that  the  public  will  be  Inter- 
ested in  Uiief  comment  on  them. 

Foreign    Credits    an.'    Advertising 

The  compilation  of  a  reliable  list  of 
foreign  Importers  is  a  big  task  that 
Ti  as  undertaken  by  one  organization. 
It  was  not  the  idea  at  the  outset  to 
establish  a  credit  rating  service;  the 
association  merely  wanted  to  gather 
all  available  names  of  i:oreign  buyers 
of  its  product  and,  throug'.i  the  aid  of 
bnnks  and  other  reliable  agencies,  get 
a  general  line  on  the  importance  of 
existing  firms  and  eliminate  "dead 
wood." 

To  facilitate  the  Inquiry  abroad  spe- 
cial forms  calling  for  detailed  infor- 
mation  were    printed    in   several   Ian- 


By  EDWARD  A.  BRAND 

Secretary  Tanners'  Council 

guages  and  eup:?lied  to  the  agencies 
which  made  the  investigation.  The 
returns  to  the  interrogatory  enabled 
the  association  to  remove  from  its 
records  hundreds  of  firms  which  had 
ceased  to  exist  and  this  alone  saved 
an  immense  sum  in  postage  and  use- 
lees   circularization. 

As  regards  credit  reports,  th"  as- 
sociation has  on  file  at  present  ratings 
on  more  than  4,000  buyers  scattered 
all  over  the  world.  The  data  are  to 
complete  that  exchange  arrange- 
ments have  been  effected  with  other 
institutions  maintaining  similar  ser- 
vices. 

CoSperative  advertising  through 
such  mediums  as  house  organs  and 
handbooks  speoially  prepared  for  for- 
eign disetribution  is  an  activity  that 
has  procured  many  profitable  business 
connections  for  American  firms.  And 
success  in  distributing  this  literature 
was  augmented  by  the  complete 
records  of  overseas  buyers. 

Last  year  the  Tanners'  Council  col- 
lected a  fund  of  $35,000  in  subscriptions 
and  for  advertising  space  to  publish  an 
international  cable  code  for  use  by  the 
hide  and  ,lea:her  trades.  The  code  was 
compiled  bv  an  expert  in  charge  of 
similar  work  for  {he  Federal  Govern- 
ment during  the  war.  There  are  two 
sections  of  the  book — one  for  gehe^al 
use  and  another  devoted  to  hides,  lea- 
ther, and  tanning  materials.  The  only 
other  code  dmiing  with  the  special 
subject.s  named  was- published  in  Great 
Britain  forty  years  ago.  This  publica- 
tion has  enabled  its  users  to  cut  their 
cable  bills  in  half. 

Adjusting  Trade  Disputes 

Adjustment  of  complaints  arising 
out  of  sales  of  goods  to  foreign  firms 
ia  another  important  task  undertaken 
by  a  trade  organization.  Regardless 
of  whether  the  controversy  grows  out 


of  a  sale  by  a  member  or  non-member, 
the  association  believes  it  to  be  Its 
duty  to  adjust  it  and  thereupon  pre- 
serve the  good  name  of  American 
products   in   foreign  markets. 

In  1920,  When  domestic  trade  in  cer- 
tain products  began  to  decline,  it  was 
felt  by  an  interested  association  that 
something  ought  to  be  done  for  its 
members  to  enable  them  to  hold  at 
least  a  portion  of  their  foreign  busi- 
ness. It  was  therefore  instrumental 
in  having  a  number  of  firms  in  the 
industry  tie  in  with  an  Edge-law  bank 
in  a  position  to  offer  long-time  credit 
facilities. 

Much  valuable  work  is  done  in  co- 
ordinating and  publishing  tariff  rates, 
marking  regutetlons  and  changes  In 
patent  and  trade-mark  laws  of  for- 
eign countries  relating  to  spfecific 
commodities. 

Finally,  trade  associations  actively 
cooperate  with  the  Department  of 
Commerce  and  the  National  Chamber 
in  improving  statistics  of  imports  and 
exports,  arranging  meetings  for  re- 
turning commercial  attaches  and  con- 
sular officers,  distributing  foreign 
samples,  and  making  known  to  mem- 
bers generally  its  facilities  for  devel- 
oping foreign  commerce.  ^ 

There  are  other  activities  of  lesser 
importance  that  might  be  mentioned, 
but  those  stated  give  an  adequate  idea 
of  what  is  being  done  by  trade  organ- 
izations to  solve  the  foreign  problems 
of  their  members.  There  is  much 
work  ahead  for  Industries  which  de- 
pend upon  foreiau  sources  for  M  or 
a  part  of  their  raw  materials.  When 
conditions  again  become  normal  there 
will  be  keen  competition  in  the  world 
markets  for  the  better  grades  and  se- 
lections of  such  materials  and  the 
data  in  the  hands  of  trade  assocla* 
tions  will  be  found  of  great  valuQ. 


CO-OPERATIVE   COMPETITION 


il 


April  3,  1922 

PRESENT   LAWS  SUFFICIENT  TO 
CURB  TRADE  ASSOCIATIONS 


"Bad"  Associations  Would  Not  File  Reports  With  State — Legitimate 
Groups  Can  Accomplish  Purpose  by  Co-operating  With  Hoover 


By  GILBERT  H.  MONTAGUE 

Counsel  in  many  anti-trust  proceedings  and  Federal  Trade  Commission  inves- 
tigations and  author  of  '"Business  Competition  and  the  Law." 


On  Mau-ch  17,  1922,  a  bill  sponsored 
bv  the  Lockwood  committee  on  hous- 
iDK  passed  the  New  York  State  Sen- 
ate, forbidding  any  corporation  or  cor- 
poration oBBcial  to  participate  in  any 
"organization,  arrangement,  under- 
standing, or  agreement  of  or  between 
corporations  ...  of  which  actual 
or  potential  competitors  engaged  in 
the  same  or  similar  clasi!es  of  business 
are  members,"  or  to  participate  in  any 
"club,  society,  institute,  exchange,  bu- 
reau or  other  body  ...  of  which 
such  actual  or  potential  competitors 
are  members,"  until  after  the  State 
Department  of  Trade  and  Commerce, 
to  be  created  by  the  bill,  shall  have 
investigated  the  members,  officers, 
dues,  assessments,  plans,  purposes, 
metliods,  practices,  constitution  and 
by-laws  of  such  association,  and  the 
uses  to  which  its  dues  and  assessments 
are  put,  and  shall  have  Issued  a  license 
authorizing  It  to  transact  business. 

Any  corporation,  corporation  official, 
«•  person,  the  bill  continues,  who  "be- 
oomes  a  party  with  a  corporation" 
to  any  activity  of  any  unlicensed  as- 
sociation, or  does  "any  act  In,  to- 
ward or  tending  to  the  consummation 
of  such  purposes  of  any  such  un- 
licensed association,"  shall,  in  the  case 
of  a  corporation,  be  fined  not  less  than 
|l,e00  nor  mors  than  $20,000,  and  in 
the  case  of  a  person  must  be  Im- 
prisoned at  least  three  months  and 
not  more  than  one  year,  and  in  addi- 
tion may  also  be  fined  not  more 
tiian  $20,000. 

Prcyvisions  of  Measure 
An  association  shall  not  be  licensed, 
the  bill  provides,  if  the  proposed  State 
Deplirtinei&t  of  Trade  and  Commerce 
finds  that  the  association's  activities 
wiU 

(1)  "tend  to  prevent,  restrain,  limit 
•p~r«atzlsfc>«oni9atItloB|f 


(2)  "tend  to  fix,  prescribe  or  advise 
or  suggest  the  fixing  of  the  price  of 
any  such   article  or  commodity," 

<3)  "tend  to  restrain,  limit,  restrict 
or  diminish  the  output  or  supply,  to 
divide  or  apportion  the  territory  be- 
tween actual  or  potential  competitors 
or  to  encourage  such  competitors  to 
keep  out  of  or  fail  to  enter  any  given 
territory  in  competition  with  one  an- 
other." 

(4)  "fall  to  effect  a  more  beneficent, 
efficient,  and  economical  production, 
marketing,  transportation,  or  distri- 
bution of  any  such  article  or  com- 
modity in  free  and  open  competition," 

(5)  "tend  or  is  calculated  to  pro- 
mote or  encourage  unreasonable  prof- 
its to  the  members  or  to  any  member 
of  such  association  or  to  any  other 
person,  firm,  or  corporation  engaged 
in  a  similar  business," 

(6)  "be  discriminatory  between  per- 
sons or  localities  or  injurious  to  the 
Intereists  of  the  State," 

(7)  "be  in  any  other  manner  calcu- 
lated to  interfere  with  unrestricted 
competition  or  is  otherwise  adverse 
to  the  public  welfare." 

No  right  of  appeal  to,  or  review  by, 
the  courts  is  provided  in  the  bill,  in 
event  that  an  association  is  denied  a 
license. 

Besides  the  powers  above  described, 
the  bill  intrusts  the  iJioposed  State 
Department  of  Trade  and  Commerce 
generally  with  the  "encouragement, 
development,  assurance,  protection," 
and  regulation"  of  "free  and  open 
competition  in  the  production,  man- 
ufacture, marketing,  purchase,  sale, 
exchange,  use,  hiring,  storing,  and 
distribution  of  any  article  or  com- 
modity in  common  -jse,"  and  specifical- 
ly with  investigating  the  cost  of  such 
articles  and  commodities  and  "secur- 
ing the  production,  manufacture,  mar- 
keting, purchase,  sale,  use,  hiring,  dis- 
tribution, and  exchange  of  such  arti- 


cles and  commodities  upon  a  fair  basis 
and  at  prices  regulated  solely  by 
competitive  conditions,  uncontrolled 
by  restraints  or  restrictions  of  any 
kind." 

The  proposed  State  Department  of 
Trade  and  Commerce,  according  to  the 
bin,  shall  have  "full  access  to  and  the 
right  to  inspect  and  take  copies  of 
all  books  of  account,  documents,  cor- 
respondence, and  other  papers  relat- 
ing to  the  business  and  affairs  of  alt 
corporations.  Joint  stock  associations, 
trade  organizations,  and  other'  bodies" 
whose  activities  In  any  way  compiitw 
or  affect  trade  or  commerce  within 
the  State. 

Failed  in  Assembly 

This  bill  was  not  introduced  until 
March  2,  1922,  when  the  New  York 
Legislature  was  on  the  eve  of  ad- 
journment. Because  the  Assembly 
failed  to  pass  the  bill  in  the  tumult  of 
its  closing  session  scarcely  two  weeks 
later,  the  counsel  of  the  Lockwood 
committee  on  housing  importuned 
Gov.  Miller  to  reconvene  the  Leg- 
islature  in  extraordinary  session  for 
the  purpose  of  enacting  this  bill.  The 
Governor,  whose  sympathies  are  ap- 
parently with  the  genera'-  purpose  of 
the  bill,  showed  sound  judgthent  in 
replying: 

"I  am  unwilling  to  coerce  the  Leg- 
islature into  taking  hasty  action  upon 
a  measure  of  such  vast  Importance 
by  calling  an  extraordinary  session. 
You  have  been  studying  this  subject 
for  months,  and  as  a  result  of  this 
study  you  have  produced  a  bill  just 
before  the  Legislature  adjourned.  1 
think  the_  Legislature  Is  entitled  to 
ample  time  to  study  your  produc- 
tion."' '" 

What  is  the  necessitv  for  this  bill, 
which  would  confer  upon  the  pro- 
posed State  Department  of  Tr^de  aitd 


43 


CO-OPERATIVE    COMPETITION 


Commerce  duties  and  powers  exceed- 
ing  those   possessed   by    the    Federal' 
Trade   Commission,    or   by   any   other 
commission.  State  or  Federal? 

To  encourage  "good"  associations 
—"so  that  business  men  could  know 
what  they  could  lawfully  do,"  to 
quote  Gov.  Miller — and  to  exterminate 
"bad"  associations  would  be  a  fair 
summary  of  all  the  arguments  for  the 
bill. 

Neither  of  these  alms,  however,  is 
accomplished  by  the  bill.  With  no 
compensating  benefits  of  substantial 
Importance,  it  would  turn  loose  upon 
the  trade  and  commerce  of  the  iState 
all  the  evils  of  practically  uncon- 
trolled bureaucracy. 

Business  men,  even  if  they  make  to 
the  proposed  State  Department  of 
Trade  and  Commerce  the  fullest  dis- 
closures, and  affiliate  only  with  asso- 
ciations licensed  by  the  department 
and  conforming  to  all  its  regulations. 
Would  nevertheless  never  "know  what 
they  could  lawfully  do."  Except  in 
Bo  far  as  immunity  may  be  obtained  by 
testifying  under  subpoena  in  some  hos- 
tile proceeding,  nothing  in  the  bill 
protects  licensed  associations,  or  busi- 
Bess  men  affiliated  with  licensed  as- 
sociations, from  indictment  and  prose- 
cution under  New  York  statutes 
against  restrkints  of  trade  comprised 
In  the  Penal  Code  and  the  Donnelly 
Anti-Trust  Act.  Neither  of  these 
Btatutes  is  repealed  or  in  any  way 
modified  by  the  bill. 

Federal  Law  in  Force 

Nothing  in  the  bill,  of  course,  can 
In  any  way  prevent  injunction  pro- 
ceedings or  criminal  prosecution  by 
the  Attorney  General  of  the  United 
States  or  the  local  United  States  At- 
torney -under  the  Federal  Sherman  act 
•  nd  Clayton  act,  both  of  which  acts 
may  be  violated  by  licensed  associa- 
tions whose  members  may  all  be  resi- 
dent and  doing  business  only  within 
m»  State. 

Nor  can  anything  in  the  bill  pre- 
▼ent  proceedings  against  licensed  as- 
sociations and  their  members  by  the 
Federal  Trade  Commission  in  the  en- 
forcement of  the  Clayton  act  and  the 
Federal  Trade  Commission  Act  forbid- 
ding so-called  "unfair  methods  of 
competition  in  commerce." 

Even  as  to  the  transactions  ap- 
proved by  the  proposed  State  Depart- 
ment of  Trade  and  Commerce,  there- 
fore, every  form  of  prosecution,  in- 
junction proceeding,  and  criminal  ac- 
tion now  afforded  by  existing  State 
and'  Federal  laws  may  be  invoked  by 
thf  Attorney  General  of  the  State,  the 


Atttorney  General  of  the  United 
States,  the  United  States  Attorney  of 
tills  District,  and  the  Federal  Trade 
Commission. 

How  illusory  is  the  hope  that  with 
the  enactment  of  the  bill  "business 
men  could  know  what  they  could  law- 
fully do"  appears  from  the  fact  that 
lt.bor  unions,  farmers,  gardeners,  dairy 
men,  livestock  farmers,  and  fruit 
growers  are  significantly  excepted  from 
the  bill. 

Few  associations,  compared  with  the 
entire  number  of  trade  associations, 
carry  on  any  activities  that  raise  any 
legal  questions  whatsoever. 

Most  "good"  associations,  as  the 
Federal  Trade  Commission's  recent  in- 
vestigation and  Secretary  Hoover's  re- 
cent correspondence  with  Attorney 
General  Daugherty  have  shown,  con- 
centrate their  activities  upon  stand- 
ardization of  quality,  grades  and  tech- 
nical designations,  elimination  of 
wasteful  prc:-sses,  prevention  of  dis- 
honest practices,  handling  of  group 
insurance,  cooperative  representation 
on  legislative  questions  and  transpor- 
tation matters,  cooperation  with  Gov- 
c-nment  departments  and  bureaus, 
and  a  limited  service  of  uniform  cost 
accounting  and  statistical  trade  in- 
formation which  have  never  been 
legally  questioned. 

Most  of  the  largest  and  most  suc- 
cessful trade  associations  have  limited 
their  activities  to  this  category,  and 
are  as  free  from  the  opportunity  or 
the  temptation  to  the  abuses  con- 
demned by  the  Lockwood  Committee 
on  Housing  and  by  the  Supreme  Court 
in  the  hardwood  manufacturers'  case 
as  are  the  Lockwood  committee  and 
the   Supreme    Court   themselves. 

Only  a  relatively  few  associations, 
according  to  the  Federal  Trade  Com- 
mission's recent  investigation,  have 
ever  attempted  any  interchange  of 
trade  information  regarding  demand, 
supply,  and  prices,  in  which  field  alone 
can  possibly  arise  the  abuses  which 
the  Lockwood  committee  and  the  Su- 
preme Court  have  denounced. 

Hoover  Plan  Approved 

Eliminating  from  consideration 
those  "open  price  associations"  that 
have  been  commercialized  and  ex- 
ploited by  so-called  "'association 
lawyers"  and  professional  "associa- 
tion secretaries"  of  the  promoter  type, 
the  residuum  of  "good"  associations 
that  desire  the  legitimate  interchange 
of  ^rade  informatidfi  regarding  de- 
mand, supply,  and  prices  can  best  ac- 
complish their  lawful  purpose  through 
District  Attorney  of  this  County,  the  I  cooperating  with  Secretary  Hoover  in 


the  programme  outlined  in  his  corre- 
spondence with  Attorney  General 
Daugherty,  rather  than  through  the 
dubious  authority  of  the  proposed 
State  Department  of  Trade  and  Com- 
merce. 

To  imagine  that  this  bill  will  ex- 
terminate "bad"  associations,  of  the 
deliberately  criminal  t;  pe,  exposed  by 
the  ability  and  perseverance  of  the 
Lockwood  Committee  on  Housing  and 
its  counsel,  is  to  imagine  that  combi- 
nations of  this  type  will  ever  operate 
in  the  open. 

Such  associations  and  their  mem- 
bers will  never  file  data  with  the  pro- 
posed State  Department  of  Trade 
and  Commerce.  In  the  future,  as  the 
Lockwood  Committee  on  Housing  has 
found  in  its  own  experience,  prose- 
cutions and  injunction  proceedings 
and  criminal  actions  under  the  State 
and  Federal  anti-trust  laws  will  be 
the   only   remedy. 

Under  the  recent  Supreme  Court  de- 
cision in  the  Hardwood  Manufactur- 
ers' Association  case  every  abuse  of 
tr."ide  associations,  as  regards  inter- 
state commerce,  which  the  Lockwood 
Committee  on  Housing  has  reported 
can  be  stopped  by  injunction  pro- 
ceedings and  criminal  prosecution 
under  th?  Sherman  act  and  the  Clay- 
ton act. 

Under  the  recent  SupVeme  Court 
decision  defining  the  Federal  Trade 
Commission's  jurisdiction  the  enor- 
mous powers  of  investigation  and 
prosecution  possessed  by  the  commis- 
sion extend  to  every  combination  in 
violation  of  the  Sherman  act,  or  the 
Clayton  act,  as  well  as  to  that  indefi- 
nite  class  of  combinations  and  trans- 
actions outside  these  acts,  which  the 
Supreme  Court  intimates  may  fall 
within  the  Federal  Trade  Commission 
Act's  prohibition  against  "unfair 
methods  of  competition  in  commerce." 

With  the  Sherman  act,  the  Clayton 
act,  the  Federal  Trade  Commission 
act,  and  the  State  Penal  Code,  and 
Donnelly  anti-trust  act  strengthened 
by  the  New  York  Legislature  in  1921, 
and  with  the  sweeping  powers  of  In- 
vestigation and  prosecution  now  pos- 
sessed under  these  laws  by  the  At- 
torney General  of  the  United  States, 
the  local  United  States  Attorney,  the 
Federal  Trade  Commission,  the  At- 
torney General  of  the  State,  and  the 
local  District  Attorney,  it  would  seem 
that  Government  supervision  and 
Government  corrective  measures,  both 
Federal  and  State,  are  already  more 
than  sufficient  to  cope  with  any  pos- 
sible dereliction  on  the  part  of  trad* 
associations. 


COOPERATIVE    COMPETITION 


43 


April  4,  1922 


TRADE   GROUPS  CAN  AID  WITH 
MARKET  AND  COST  REPORTS 


Uniform  Systems  Help  in  Production  and  Distribution — ^Can  Be  No 
Criticism  if  There  Be  No  Understanding  to  Make  Illegal 

Use  of  Information 


By  WILLIAM  E.  LAMB 

Solicitor  of  the  Department  of  Commerce 


The  producing  interests  of  the  coun- 
try have  for  a  long  period  of  time 
sought  through  study  and  experiment 
for  the  most  suitable  means  to  in- 
crease their  efficiency  in  the  matter 
of  production.  As  a  result  of  this 
many  wasteful  methods  have  been 
discontinued  and  economies  substituted 
that  to-day  make  unit  costs  possible 
that  are  lower  in  percentage  increase 
than  the  increases  in  many  of  the 
factors  involved  in  operating  expense. 

It  was  not  so  long  ago  th£ft  little  If 
any  attention  was  given  to  unit  costs 
of  production.  The  question  of  gain 
or  loss  was  usually  determined  by 
the  balance  sheet  at  the  end  of  the 
year.  If  that  showed  that  the  amount 
of  money  on  hand  exceeded  that  paid 
out  in  operation  and  a  sum  sufficient 
to  pay  a  fair  return  on  the  capital  in- 
vested it  was  assumed  that  the  busi- 
ness was  prosperous  and  the  result 
dpe  to  careful  management. 

A  gradual  increase  in  the  cost  or 
expense  of  the  factors  entering  into 
production  was  observed,  however, 
without  corresponding  increase  in 
price  of  the  finished  article,  as  prices 
for  standard  articles  remained  fairly 
constant  for  a  considerable  period 
prior  to  1914,  with  the  result  that  the 
balances  at  the  end  of  each  year  con- 
tinued to  decrease.  This  situation 
could  not  be  remedied  by  an  auto- 
matic increase  in  price  of  the  finished 
product,  and  a  hope  that  improved 
methods  of  production  might  furnish 
the  solution  led  to  observation  and 
research  that  resulted  in  great  ad- 
vancement  in  economic  effort. 

Out  of  this  grew  the  desire  to  know 
the  cost  of  a  given  finished  article, 
and  to-day  there  are  numerous 
methods  or  systems  of  cost  account- 
ing or  cost  finding  that  may  be  said 
to  produce  reasonably  accurate  re- 
sults. 


There  is  not  much  difficulty  In  de- 
termining factors  that  may  properly 
be  taken  into  account  in  finding  cost, 
especially  in  instances  where  a  plant 
produces  but  one  article,  but  great  dif- 
ficulty is  experienced  in  determining 
the  portion  of  the  expense  properly 
chargeable  to  these  proper  factors  that 
shall  be  allocated  to  various  articles 
produced  by  one  plant,  as  well  as  the 
means  employed  in  arriving  at  auch 
allocations. 

Differences  of  opinion  and  prefer- 
ences for  one  or  another  of  the  va- 
rious cost  finding  systems  have  not 
been  in  the  interest  of  uniformity  of 
method,  and  many  industries  have  un- 
dertaken, through  trade  association 
organization,  to  reach  a  standard 
method  of  cost  finding  or  cost  account- 
ing that  would  be  most  suitable  and 
appropriate  for  a  particular  industry. 

There  are  to-day  many  trade  asso- 
ciations covering  a  large  field  of  di- 
versified industry  that  have  devised  a 
standard  system  of  cost  accounting 
for  their  respective  members  which  is 
used  by  each  solely  for  the  purpose 
of  ascertaining  whether  or  not  his 
plant  is  being  efficiently  operated.  If 
any  particular  item-  of  cost  seems  to 
be  out  of  line,  he  is  then  in  a  position 
to  seek  the  proper  remedy. 

There  has  been  some  suggestion 
that  the  adoption  of  uniform  methods 
of  cost  accounting  or  cost  finding  for 
a  given  industry  might  lead  to  uni- 
form price  fixing.  There  is,  however, 
no  relation  between  cost  and  price 
unless  a  plant  is  running  at  normal 
capacity  and  there  is  a  steady  and 
even  demand  for  the  product.  Unit 
costs  are  kept  at  low  levels  only  when 
the  volume  of  production  is  lai-ge,  and 
if  a  plant  is  running  on  half  time  or 
quarter  time  unit  costs  increase  cor- 
respondingly as  volume  decreases. 

If    under   these   circumstances    cost 


is  related  to  price,  the  highest  price 
would  prevail  during  the  period  of 
least  demand  and  of  smallest  produc- 
tion, while  during  periods  of  the  great- 
est demand  and  consequent  capacity 
production  bringing  low  costs,  low 
prices  would  result.  Experience  shows 
that  neither  of  these  results  will  fol- 
low under  the  conditions.  It  may  be 
said,  therefore,  that  a  trade  associa- 
tion havl.iB  as  one  of  fts  purposes  the 
perfection  and  unification  of  sound 
cost-finding  methods  is  in  a  field  of 
most  helpful  endeavor.  Many  of  the 
economies  in  production  may  be  .  di- 
rectly attributed  to  work  of  this  char- 
acter, and,  with  the  experience  of  th« 
t>ast,  no  doubt  a  continuation  of  the 
effort  will  show  marked  beneficial  ad- 
vancement. 

The  great,  Intensive  effort  that  has 
been  made  in  production  efficiency  has 
not  attended  the  merchandising  or  dis- 
tribution of  products.  It  seems  to  be 
the  belief  that  once  the  proper  level 
of  economic  production  is  reached 
salesmanship  will  do  the  rest.  Suc- 
cessful methods  of  selling  may  not  re- 
sult in  sound  methods  of  merchandis- 
ing or  distributing.  A  mere  sale  by  a 
producer  to  a  dustomer  may  appear 
on  the  surface  to  be  all  that  the  pro- 
ducer needs  to  do  in  the  way  of  mer- 
chandising. 

There  are,  however,  many  things  to 
be  taken  into  account  besides  getting 
the  signed  order  which  is  the  evidence 
of  the  sale.  The  goods  sold  must  be 
of  a  kind  and  character  that  the  pur- 
chaser can  dispose  of  in  his  available 
territory  of  consumption.  They  must, 
therefore,  be  suitable  to  the  needs  and 
necessities  of  the  consuming  commu- 
nity. 

The  volume  sold  must  be  properl.v 
related  to  the  potential  buying  power 
goods  are  finally  to  be  consumed,  and 
of  the  public  in  the  district  where  th« 


u 


CO-OPERATIVE    COMPETITION 


the  distance  from  producer  to  pur- 
chaser must  be  such  as  to  make  prod- 
ucts as  ready  available  to  tlM  pur- 
chaser from  a  transportation  stand- 
point as  the  goods  of  other  producers 
may  be  to  the  purchaser's  competitors 
in  the  same  territory. 

It  may  l>e  oonceded  that  sales  can 
be  made  without  taldng  any  of  these 
trade  elements  into  account,  but  with 
aU  of  these  conditions  against  the 
purchaser  there  would  be  but  one 
sale,  for  if  the  purchaser  survived 
and  was  again  in  the  marltet  the  pro- 
ducer could  not  sell  him  a  second 
time. 

Proper  merchandising  requires  steady 
customers,  and  customers  can  be  se- 
cured and  kept  through  satisfactory 
service,  and  that  service  necessitates 
furnishing  a  purchaser  with  the  kind, 
character,  and  volume  of  the  goods 
suitable  for  the  needs  and  require- 
ments of  the  purchaser's  customers 
and  at  proper  and  seasonable  times. 

There  are  few  great  industries 
which  have  demonstrated  that  the 
widest  and  most  even  distribution  of 
merchandise  is  attained  by  always 
having  the  goods  as  near  as  possible 
to  the  purchaser,  to  the  end  that  he 
may  purchase  and  have  delivered  at 
once  such  amounts  as  will  meet  his 
Immediate  needs  without  fear  of  sud- 
den slumps,  with  consequent  loss  on 
the  merchandise  unsold. 

Relation  of  Costs  to  Sales 
It  Is  true  that  low  selling  coats  may 
be  the  result  of  large  individual  sales. 
In  ordinary  times  this  course  may  be 
raccesafullr  pursued,  but  when  un- 
settled conditions  arise  purchasers 
wax  no  longer  buy  beyond  immediate 
requirements,  and  unless  supply  is  in 
the  immediate  vicinity  this  courss 
means  added  transportation  waste  and 
added  costs  of  selling. 

One  of  the  most  pertinent  facts  for 


the  determinatio;i  of  any  producer  is 
the  amount  that  he  ought  to  produce. 
In  considering  this  he  should  know  the 
productive  capacity  of  his  competitors, 
and.  for  current  purposes,  should  as- 
certain the  actual  production  for  prop- 
erly selected  periods.  Actual  produc- 
tion figures  are  valuable  only  as 
throwing  light  upon  immediate  condi- 
tions. After  the  period  is  passed,  the 
actual  production  during  that  time 
may  have  little  if  any  bearing  upon 
future  conduct,  and  taken  alone,  pro- 
ductive capacity  is  of  little  value.  To 
make  information  of  that  kind  of  ser- 
vice, it  should  be  coupled  with  actual 
distribution  titstistics. 

Compilation  of  figures  showing  dis- 
tribution of  given  products  by  dis- 
tricts according  to  grade,  brand,  size, 
or  quality,  or  by  such  other  form  of 
designation  as  may  be  suitable  for 
the  commodity  furnishes  a  record 
from  which  the  intelligent  business 
man  can  draw  proper  conclusion.s.  A 
record  of  that  kind  will  show  him  that, 
regardless  of  general  business  condi- 
tions, a  certain  volume  of  the  com- 
modity In  which  he  was  interested 
was  actually  distributed  in  the  vari- 
ous territories  during  the  period  taken. 

If  this  record  is  regnforced  with  the 
volumes  of  stocks  on  hand,  wholesale 
and  retail.  In  the  various  consuming 
districts,  each  producer  has  a  start- 
ing point  to  determine  the  volume  he 
will  produce  for  the  next  period.  Year 
by  year,  distribution  records  and  sta- 
tistics become  of  greater  value,  espe- 
cially when  years  of  normal  produc- 
tion and  distribution  are  reached. 

What  Statistics  Show 

Statistics  regarding  distribution  of 
the  character  indicated,  when  coupled 
with  production  and  capacity  statis- 
tics for  the  same  period,  become  of 
great  value  for  current  purposes.   The 


volume  of  production  by  districts, 
coupled  with  capacity  to  produce,  will 
show,  in  the  case  of  plants,  whether 
they  are  running  on  full  time  or  less. 
The  reports  of  their  distribution  by 
districts  with  stocks  on  hand  therein, 
both  wholesale  and  retail,  will  show 
the  territories  of  distribution  that  are 
overloaded,  as  well  as  those  that-taay 
be  short  in  supply. 

No  sensible  business  man  is  going  to 
attempt  the  merchandising  of  his  i  rod- 
uct  in  a  territory  that  is  already  over- 
stocked, and  especially  is  this  true  It 
the  statistics  demonstrate  that  the 
actual  distribution  for  the  period 
taken,  coupled  with  stocks  on  hand, 
substantially  equal  the  normal  capac- 
ity to  consume.  The  districts  that 
show  a  lack  of  requisite  supply  will  be 
the  ones  that  wil  receive  attention,  and 
sane  and  intelligent  distribution  will 
result. 

It  is  the  character  of  distribution 
that  keeps  an  even  and  steady  supply 
in  the  consuming  territories  at  all 
times  that  is  commensurate  with  an 
even  and  steady  demand.  A  study  of 
production  and  distributing  figures 
will  also  enable  producers  and  dis- 
tributers to  determine  when  the  point 
of  saturation  has  been  reached  in 
given  coniftming  territories,  and  then, 
instead  of  a  continued  oversupply  in 
those  territories,  new  markets  will  be 
sought  for  the  surplus. 

Trade  associations  collecting  statis- 
tical Information  regarding  produtlob 
and  distribution  along  the  lines  indi- 
cated and  furnishing  the  same  to  the 
public  and  to  their  members  appear 
to  be  perfoiTning  a  service  of  l>eneflt 
to  the  public  and  to  the  commercial 
world,  and,  if  there  is  no  understand- 
ing, concealed  or  otherwise,  to  make 
unlawful  use  of  the  information  so 
obtained,  they  are  not  likely  to  b^ 
subjected  to  criticism. 


CO-OPERATIVE   COMPETITION 


15 


April  4,  1922 


HOW  TRADE   GROUPS  CUT  OUT 

WASTE 


Benefits  of  Co-operation  in  Music  Industries  —  Market  Expansion  a 
Great  Problem  —  Standardization  of  Methods  Aimed  At 


By  ALFRED  L.  SMITH 

General  Manager  Music  Industries  Chamber  of  Commerce;  Vice-President 
American  Trade  Association  Executives. 


It  would  not  be  surprising  it  the 
public  receives  an  erroneous  impres- 
sion of  the  purposes  and  general  ac- 
tivities ot  trade  associations  from  the 
disclosures  of  improper  practices  of 
certain  associations  In  the  building 
industry  and  from  the  recent  Supreme 
Court  decision  in  the  so-called  "Hard- 
wood-Lumber case,"  which  has  stim- 
ulated discussion  ot  "open-price"  ac- 
tivities and  their  relation  to  the  pub- 
lic welfare. 

The  building  associatlona  were  not 
real  trade  associations,  as  their  ac- 
tivities were  conttned  cWeHy,  if  not 
exclusively,  to  the  practices  com- 
plained of.  The  Hardwood-Lurnber 
case,  on  the  other  hand,  was  con- 
cerned with  an  activity  which  had 
hitherto  never  been  declared  illegal 
or  contrary  to  public  interest.  Even 
so,  this  type  of  activity  has  never 
been  carried  on  by  more  than  a  lim- 
ited number  ot  trade  associations, 
most  ot  which  have  also  carried  on 
many  important  activities  entirely 
unrelated      to      statistics      or      prices. 

Naturally,  since  f.ie  Hardwood- 
Lumber  caso  referred  only  to  an  "open- 
price"  plan,  the  defenders  ot  trade  as- 
sociations have  confined  themselves 
to  the  question  in  dispute,  which 
means,  of  course,  that  they  have  talked 
chiefly  about  open-price  activities  and 
have  said  very  little  about  the  great 
variety  of  Important  trade  association 
work  entirely  unrelated  thereto.  It 
would  be  a  pity  if  as  a  result  the  pub- 
lic should  get  the  impression  that 
"open-price'"  or  even  statistical  work 
In  general  constitutes  the  chief  ac- 
tivity of  most  trade  associations. 

Many   Problems   to   Solve 
Industries,  as  distinct  from  individu- 
al   business    Arms,    have    many    and 
grave  problems.     The  real  purpose  of 
a  trade   association-  la   to   provide    a 


medium  through  which  members  ot  an 
industry  can  take  up  cooperatively  all 
those  problems  pertaining  primarily  to 
the  industry  as  such  and  which  can- 
not be  met  successfully  by  members 
of  the  industry  acting  individually. 

The  activities  of  a  trade  association 
are  determined  by  the  needs  of  its 
particular  industry.  Few,  if  any,  ac- 
tivities are  common  to  a  great  major- 
ity of  associations.  There  are,  how- 
ever, a  number  ot  qreneral  lines  of  ac- 
tivity which  most  associations  carry 
on  to  a  greater  or  less  extent. 

The  impelling  need  of  an  Industry 
for  constant  expansion  of  its  market 
constitutes  one  of  the  greatest  de- 
mands for  trade  association  assist- 
ance. Such  activities  as  national  co- 
operative advertising  of  the  industry's 
product,  development  of  new  uses  for 
it,  educational  work  to  instruct  con- 
sumers how  to  use  it,  and  the  cooper- 
ative development  of  new  foreign  mar- 
kets are  but  a  few  of  the  recognized 
market  expansion  activities  of  trade 
associations. 

One  great  problem  of  industry  to- 
day js  elimination  ot  waste  and  im- 
provement of  quality.  While  the  actu- 
al improvement  of  quality  and  the  in- 
troduction of  new  methods  must  take 
place  in  the  individual  business  con- 
cern, nevertheless  no  concern  caii  pro- 
ceed far  by  itself.  It  is  largely  de- 
pendent upon  and  must  cooperate  v/ith 
fellow  members  of  the  trade,  as  well 
as  with  those  from  whom  it  buys  ma- 
terials and  to  whom  it  sells.  Typical 
of  this  type  of  trade  association  activi- 
ties is  the  campaign  for  "standardiza- 
tion," or  "simplification,"  as  it  is  often 
railed.  The  trade  asociation  is  .-ibi^o- 
lutel>   essential  to  such  work. 

In  Field  of  Legislation 

There'  is  .  a  contsant  stream  of 
legislation   of   almost  every  conceiva- 


ble n,iture  pouring  into  Congress  anfl. 
the  law-making  bodies  of  the  variou.s 
States.  Much  of  this  legislation  vitally 
concerns  business.  Trade  associations 
are  the  only  effective  medium  through 
which  industries  can  inform  Congress 
of  the  probable  result  of  such  legisla- 
tion on  business  and  make  helpful 
suggestions.  Obviously,  legislative 
work  is  not  only  necessary  to  tha 
proper  development  and  protection  of 
the  industry,  but  also  Is  helpful  to 
Congre.ss. 

As  a  result  of  the  great  multiplicity 
of  legislation.  Government  bureaus 
and  commissions  having  to  do  with  the 
a-ssl.stance,  as  well  as  regulation  of 
business,  a  trade  association  must 
maintain  constant  contact  -witll 
Washington. 

Every  trade  association  alms  to  give 
direct  service  to  members  In  all  mat- 
ters in  which  the  individual  cannot  act 
successfully  or  lacks  adequate  facili- 
ties. There  is  an  endless  variety  of 
such  service.  Transportation  is  a  fer- 
tile field  for  service,  as  in  auditing 
freight  bills  and  routing  shipments. 

In  many  cases  the  association  can 
best  represent  the  individual,  as  when 
petitioning  public  bodies  or  in  pre- 
senting claims  to  railroads.  The  com- 
pilation and  distribution  of  credit  in- 
formation is  a  common  service.  The 
development  of  cost  systems  is  indic- 
ative of  another  type  of  service. 
Many  industries  are  subject  to  special 
legislation,  as  taxation,  and  this  re- 
sults in  frequent  demands  for  direct 
assistance,  especially  of  inforraationaj 
character. 

Reliable  information  is  the  real 
basis  of  successful  business.  Only  the 
very  largest  individual  business  con- 
cerns can  command  the  necessary  fa- 
cilities for  adequate  research  investi- 
gation.      The     trade     association     is 


46 


COOPERATIVE    COMPETITION 


therefore  called  upon  by  members,  and 
not  Infrequently  by  the  public  and  the 
fJovernment,  to  furnish  important  In- 
formation requiring  prompt  and  care- 
ful Investlgration.  For  illustration, 
trade  associations  make  investigations 
and  report  on  such  a  variety  of  sub- 
jects as  nature  and  sources  of  raw 
materials,  wage  payment  systems,  best 
methods  of  packing,  and  directories  of 
buyers. 

Statistical  Information  usually  con- 
stitutes but  a  Dart  of  the  general  In- 
formation compiled  by  trade  associa- 
tions. Most  of  them  gather  such  in- 
formation as  number  of  firms  en- 
gaped  in  the  industry,  number  of  em- 
ployees and  normal  and  capacity  out- 
put, but  a  comparatively  few  compile 
current  statistics,  such  as  stock  on 
haiid,  volume  of  sales,  shipments,  and 
th»  great  controversial  subject — 
prices. 

Value  of   Current   Statistics 

IB  the  belief  of  the  writer,  the  fur- 
niahing  of  current  statistics  is  a  valu- 
able work  which  should  be  promoted 
rather  than  curtailed,  both  In  the  in- 
terest of  Industry  and  the  public, 
nevertheless,  if  trade  associations 
should  be  forbidden  to  distribute  any 
curi'ent  statistical  information  what- 
soever, the  work  of  comparatively 
tew  associations  would  be  '  interfered 
filth  seriously. 

The  Music  Industries  Chamber  of 
Commerce  embraces  the  entire  music 
laduatry,   includias    both    production 


and  merchandising  of  ail  types  of  mu- 
sical instruments  and  supplies.  Its 
regular  activities  number  about  fifty, 
of  which  only  six  include  the  furnish- 
ing of  information  to  members  and 
only"  two  relate  to  statistical  infor- 
mation, neither  being  current  statis- 
tics. Twenty  activities  are  for  the 
promotion  of  music  among  the  masses 
of  the  people,  which  is  the  basis  of 
the  music  industry,  the  following  be- 
ing typical: 

Cooperation  with  musical  organiza- 
tions like  national  federation  of  music 
clubs,  national  music  supervisors'  con- 
ference, music  department  of  women's 
clubs,  in  their  work  of  developing 
music. 

Cooperation  in  promoting  musical 
activities  in  industrial  plants;  that  is. 
music  in  Industry. 

Work  for  proper  appropriation  for 
music  from  public  funds. 

Cooperation  and  promotion  o£  local 
music  weeks. 

Cooperation  and  promotion  of  local 
music  memory  contests. 

Assisting  universities  to  develop  ex- 
tension work  in  music. 

Furtherance  of  movement  to  give 
school  credits  for  music  studied  out- 
side. 

Promotion  of  the  idea  of  municipal 
music  commissions  to  develop  officially 
music  activities  of  a  democratc  char- 
acter. 

Campaign  of  education  with  music 
supervisors,  teachers,  organists,  cbaiu- 


bers  of  commerce,  public  spirited  in- 
dividuals, and  organizations  like  the 
National  Child  Welfare  Association  to 
give  more  attention  to  music  pro- 
motion. 

The  chamber  is  engaged  constantly 
in  export  trade  development,  legislative 
activities,  eliminating  bad  business 
practices,  and  furnishing  credit  in- 
formation. Much  preliminary  work 
has  already  been  done  in  the  matter  of 
standardization  and  it  is  expected  that 
plans  will  soon  be  completed  for  the 
intensive  development  of  this  work. 
.\  national  cooperative  advertising  cam- 
paign Is  now  under  consideration. 

The  music  industry  realizes  that  ita 
prosperity  depends  largely  upon  keep, 
ing  the  agencies  of  distribution  active. 
The  Chamber's  Trade  Service  Bureau, 
whose  purpose  it  is  to  assist  in  the 
improvement  of  methods  in  the  musio 
business,  is  therefore  devoting  most  of 
its  time  to  giving  service  to  the  music 
merchant.  Music  advertising  copy  has 
been  prepared  and  is  available  to  mer. 
chants  for  local  cooperative  campaigns. 
Musical  instrument  advertising  copy  of 
timely  importance  is  furnished  to  mer- 
chants. 

The  gathering  and  distribution  of 
merchandising  ideas  are  important,  and 
typical  business  forms  in  use  through- 
out the  merchandising  end  of  the  trade 
have  been  gathered  for  the  information 
of  members.  In  cooperation  with  the 
chamber,  several  universities  have  uil> 
dertaken  researcli  work  In  cost  M> 
counting  for  retail  music  merchanta. 


CO-OPERATIVE    COMPETITION 


47 


April  5,  1922 

PAINT  AND  VARNISH  MEN  REACH 
BUYER  THROUGH  TRADE  GROUP 


Joint  Campaign  With  "Save  the  Surface"  Appeal  to  the  Public  Aided 
Entire  Industry-Co-operation  in  Promoting  General  Busi- 
ness Basis  of  the  Trade  Association 


By  ERNEST  T.  TRIGG 

President  of  the  National  Paint,  Oil,  and  Varnish  Association;  Chairman  of 

the  committee  conducting  the  "Save  the  Surface"  campaign" 


Under  the  Sherman  anti-trust  law, 
all  business  is  divided  Into  buyer  and 
seller  and  it  is  the  broad  function  of 
the  law  to  protect  the  buyer  against 
the  seller  and  the  seller  against  him- 
self. 

The  relation  of  the  buyer  and  seller 
has  gone  through  a  most  remarkable 
evolution,  indeed,  since  the  time  when 
that  relation  was  actually  expressed 
by  a  maxim  of  the  common  law — 
caveat  emptor,  let  the  buyer  beware. 
At  that  remote  time  the  responsibility 
was  thrown  almost  entirely  upon  the 
buyer  to  get  what  he  paid  for  and  he 
fared  as  best  he  might. 

The  first  stages  of  the  development 
of  our  great  national  resources,  with 
necessarily  great  amounts  of  Invested 
capital,  were  carried  out  with  a  good 
deal  of  that  old  feeling — let  the  buyer 
beware — still  active.  The  injustices 
involved,  however,  soon  became  so 
obvious  under  a  condition  where  so 
many  people  were  dependent  in  so 
many  vital  ways  upon  the  services  or 
products  of  the  so-called  trusts  that 
the  Government  crystallized  public 
opinion  in  the  Sherman  anti-trust  law 
for  the  control  and  regulation  of  the 
trusts  in  their  relation  of  sellers  to 
millions  of  individual  buyers. 

Great  as  these  aggregates  of  busi- 
ness were,  they  are  dwarfed  by  com- 
parison with  the  units  now  dealt  with 
by  the  Sherman  anti-trust  law  in 
its  application  to  whole  industries  as 
they  have  come  to  be  expressed  in 
recent  years  in  trade  associations.  The 
Sherman  law  has  made  clear  that 
through  iio  kind  of  cooperation  can  the 
responsibility  of  the  seller  to  the  buyer 
be  evaded.  This  very  responsibility 
has  been  one  of  the  most  potent  forces 
in  calling  trade  associations  into  ex- 
istence. 

It  was  foupd  that  t«ade  associations 
wei'e  the  best  means  of  meeting  this 


responsibility  to  millions  of  buyers, 
since  it  made  possible  certain  stand- 
ards of  quality  in  product  and  busi- 
ness methods.  The  services  rendered 
by  trade  associations  have  been  large- 
ly the  means,  not  of  evading  the  law, 
but  of  making  It  unnecessary  for  the 
law  to  apply  to  any  part,  of  that  in- 
dustry. 

The  foregoing  principle  of  respon- 
sibility to  the  buyer  has  been  kept  In 
mind  in  the  paint  and  varnish  in- 
dustry in  the  organization  of  its  sev- 
eral associations.  The  parent  organi- 
zation is  the  National  Paint,  Oil  and 
Varnish  Association,  founded  in  1888, 
but  not  incoporated  until  1915.  Later, 
in  cooperation  with  the  parent  asso- 
ciation, the  paint  manufacturers 
formed  the  Paint  Manufacturers'  As- 
sociation of  the  United  States  in  1899. 
followed  by  the  National  Varnish 
Manufacturers'  Association,  with  the 
same  relation  to  the  parent  organiza- 
tion, in  1903. 

What  Has  Been  Done 

The  work  of  these  three  associations 
upon  a  definite  and  constructive  pro- 
gramme can  be  summed  up  under  the 
following  objectives: 
■  (1)  Creating  through  cooperative 
experience  the  best  possible  products 
for  public  use. 

This  is  done  through  the  mainte- 
nance of  tne  finest  physical  and 
chemical  research  laboratory  on 
paints  and  varnishes  in  the  world. 
This  work  is  carried  on  entirely 
through  the  associations  and  includes 
research  development  of  raw  mate- 
rials. Improvements  In  processes  of 
manufacture,  and  durability  tests  of 
the  finished  products. 

(2)  Benefiting  the  public  through 
the  reduction  of  manufacturing  costs 
"oy  the  reduction  of  overhead  through 


quantity  production;  by  Improving: 
manufacturing  processes  and  by  elim- 
inating waste  m  the  industry  through 
the  discontinuance  of  unnecessary 
shades  and  slaes  of  packages  in  maT- 
keting  the  products. 

(3)  The  maintenance  of  high  bus- 
iness standards  through  the  operation 
of  an  unfair  competition  bureau. 

(4)  The  reduction  of  individual  busi- 
ness hazards  by  making  available  th» 
best  methods  of  cost  accounting  In  th* 
production  of  paint  and  varnish. 

(5)  Avoidance  of  trade  misunder- 
standing through  the  standardization 
of  trade  names  and  descriptions  ol 
products. 

(6)  Reducing  fire  hazards  on  the 
part  of  the  members  by  inspection, 
education,  and  counsel  on  insurance. 

(7)  The  promotion  of  civic  cleanli- 
ness and  public  health  through  the  co- 
operation of  public  officials  and  civic 
organizations  in  promoting  "clean-up 
and   paint-up"  campaigns. 

(8)  From  the  sales  viewpoint,  mak- 
ing available  to  the  public  better 
products  at  better  prices,  ade  pos- 
sible by  educating  the  public  to  the 
economic  need  for  paints  and  var- 
nishes. This  is  accomplished  by  what 
is  known  as  the  "Save  the  Surface 
Campaign"  operated  under  (execu- 
tive management  of  the  educational 
bureau,  in  which  all  branches  of  the 
industry  have  cooperated. 

(9)  And  finally,  gearing  the  entire 
industry  to  one  common  objective 
which  is  expressed  in  the  line  now 
familiar  throughout  the  whole  paint 
and  varnish  Industry  as  its  goal — 
"Make  1922  the  greatest  nalnt  and 
varnish  year" — as  the  first  step 
towards  doubling  the  industry  by  1926. 

This  is  being  carried  out  by  the  or> 


48 


CO-OPERATIVE   COMPETITION 


ganization  of  "Save  the  Surface"  sales- 
men's clubs  among  paint  and  var- 
nish salesmen  in  all  parta  of  the 
country:  by  the  organization  of  "Save 
the  Surface"  paint  and  varnish  dealers' 
associations,  and  by  having  commit- 
tees In  each  city  stimulate  action  and 
guide  coSperatlve  effort  towards  the 
common  objective.  Every  unit  of  the 
trade  has  been  enlisted,  including 
master  painters,  dealers,  jobbers, 
manufacturers,  and  salesmen. 

"Save  the  Surface" 

The  limitations  of  this  article  pre- 
vent a  description  of  all  these  vari- 
<us  activities.  However,  the  "Save  the 
Surface  Campaign"  is  so  widely  known 
to  the  public  that  a  description  of  it 
may  prove  most  interesting  to  all. 

In  1916  the  beginnings  of  this  cam- 
paign became  apparent  in  attempts 
by  members  of  the  association  to  find 
a  common  ground  of  appeal  to  the 
buying  public  for  their  products.  It 
■was  appreciated  that  plants,  machines, 
raw  materials,  and  even  the  finished 
product  constitute  only  one-half  of 
any  business  or  industry — the  mechani- 
cal half — and  that  there  is  another 
and  more  Important  half — a  mental 
property  which  consists  of  the  minds 
•f  thousands  or  millions  of  people  who 
•re  convinced  of  the  value  of  the  prod- 
ucts of  an  Industry. 

The  problem  which  began  to  take 
•hape  was  very  briefly  this:  Could  the 
association  through  joint  effort  de- 
velop this  common  mental  property 
for  its  Individual  members?  Easy  as 
the  principles  of  the  "Save  the  Surface 
Campaign''  now  seem,  as  expressed  in 
"Save  the  Surface"  advertising,  ther» 
was  considerable  diftlculty  at  first  in 
arriving  at  a  common  ground  of  ap- 
peal and  a  satisfactory  method  of  op- 
eration. It  was  not  until  1918  that 
these  difficulties  were  overcome.  The 
first  advertisting  appeared  in  the  early 
part  of  1919. 

After  aJl,  the  principles  involved 
were  very  simple.  The  purpo.'je  of  the 
campaign  was,  very  frankly,  to  in- 
crease the  business  of  the  industry 
from  the  manufacturer  through  to 
the  dealer  and  the  painter.  But  it 
was  recognized  that  thia  could  not  be 
done  unless  this  increase  of  business 
rested  upon  a  permanent  basl.3  of 
value  to  the  consuming  public. 

The  service  of  paint  and  varnish  in 
beautifying  property  of  all  kinds  is 
easily  vecogniied.  The  economic  ser- 
vice of  paint  and  varnish  in  protection 
of  property  was  not  so  clearly  in  the 
public  mind,  and  it  was  ju-st  this  prob- 
lem   which    determined    the    common 


ground  of  appeal  in  our  advertising 
decided  upon  in  conjunction  with  our 
advertising  counsel. 

The  now  familiar  slogan,  "Save  the 
surface  and  you  save  all,"  identified 
with  the  sweep  of  the  brush  and  hand, 
was  worked  out,  and  while  at  first 
this  slogan  represented  only  an  idea, 
it  is  pretty  generally  accepted  by  the 
paint  and  varnish  industry  to-day  as 
worth,  at  a  very  conservative  estimate, 
a  million  dollars  a  word  for  ita  seven 
Khort  words.  Through  that  phrase  the 
economia  service  of  paint  and  varnish 
has  been  presented  to  the  public.  It 
has  been  accepted  to  such  an  extent 
that  the  Industry  feels  that  it  is  on  a 
far  different  footing  with  the  con- 
sumers of  paint  and  varnish  than 
ever  before. 

To  understand  the  actual  operation 
of  the  campaign  In  its  effect  upon 
the  business  of  individual  members  of 
the  association,  it  is  necessary  to  bear 
in  mind  that  the  sale  of  almost  any 
product,  particularly  of  the  utility 
class,  is  made  up  of  three  parts: 

(1)  The  sale  of  the  need  for  the 
product. 

(2)  The  sale  of  the  manufacturer  as 
a  reputable  seller  with  whom  the 
buyer  can  safely  deal,  and 

(3)  The  sale  of  that  partioulir  man- 
ufacturer's particular  product  in 
answer  to  the  need  which  hai?  already 
been  sold. 

The  first  of  these  three  steps  in  selling 
is  being  accomplished  through  the 
"Save  the  Surface  Campaign."  Theother 
two  steps  are  not  interfered  with  or 
altered  in  their  importance.  They 
constitute  the  work  of  the  individual 
manufacturer  operating  along  his  own 
lines  within  the  territory  that  he 
serves. 

This  first  step  of  selling  the  need 
for  paint  and  varnish  is  accomplished 
by  the  "Save  the  Surface  Campaign" 
through  an  impartial,  impersonal  ap- 
peal which  carries  the  greatest  pos- 
sible conviction  to  the  consumer.  The 
presentation  of  its  message  contains 
no  conflicting  sales  pressure  calling 
attention  to  specific  brands.  The 
paint  and  varnish  industry  as  a  whole, 
with  all  its  prestige  of  size  and  ser- 
vice,  comes  with  its  simple  message, 
explaining  clearly  to  the  con.sunier 
why  paint  and  varnish  are  his  eco- 
nomic servants;  why  he  should  em- 
ploy them,  and  why  a  talent  put  into 
their  safekeeping  will  be  returned 
two-fold,  five- fold,  ten- fold. 

The  "Save  the  Surface  Campaign' 
helps,  not  supplants,  the  individual 
salvs    and    advertising    efforts    of    the 


members  of  the  association.  Since  Its 
inauguration,  there  has  been  more  in- 
dividual advertising  in  the  paint  and 
varnish  industry  than  existed  be- 
fore. The  association's  campaign  re- 
lieves the  individual  member  of  the 
necessity  of  using  his  sales  energy 
and  advertising  in  accomplishing  the 
purpose  achieved  by  the  associated 
Work,  and  in  so  doing  makes  it  pos- 
sible for  him  to  devote  a  greater 
amount  of  time  and  a  greater  amount 
of  energy  to  the  sule  of  his  own  com- 
pany, and  his  own  brands. 

The  success  of  the  "Save  the  Sur- 
face Campaign"  is  so  concrete  that 
It  has  truly  become  an  integral  part 
of  the  whole  industry.  It  was  felt 
at  the  beginning  and  it  has  now  been 
proved  that  the  industry  cannot  in- 
crease its  business  as  a  whole  until 
it  has  broken  down  buying  resistance 
and  this  can  be  done  through  making 
the  public  fully  conscious  of  its  eco- 
nomic  need  for  paint  and  varnish. 

The  operation  of  this  campaign  ha.s 
not  only  affected  the  manufacturer 
but  has  put  the  whole  of  the  distrib- 
utive system — the  jobber,  the  dealer, 
and  the  master  painter — upon  a  dif- 
ferent basis.  In  distribution,  it  was 
formerly  said  that  paint  was  "han- 
dled" by  this  jobber  or  this  dealer. 
To-day  paint  and  varnish  are  more 
and  more  being  "sold"  by  this  Jobber 
or  this  dealer. 

Each  dealer  and  his  salesmen  feel 
that  they  have  a  far  better  basis  than 
ever  before  for  asking  for  the  con- 
sumer's attention,  and  a  greater  cer- 
tainty of  getting  it,  with  the  result  of 
increasing-  sales.  To-day  they  are 
talking  not  alone  paint  and  varnish, 
but  first,  and  most  important,  surface 
protection. 

To-day  the  consuming  public  rec- 
ognizes this  pconomic  service.  This 
public  recognition  is  the  source  of  a 
new  pride  in  his  business  on  the  part 
of  the  manufacturer,  the  jobber,  the 
retailer,  and  the  iminter,  and  that 
pride  in  bis  business  is  the  main- 
spring of  a  new  confidence  and  a  new 
energy.  All  are  appreciating-  the  fact 
that  each  is  dependent  on  the  other, 
and  this  broadening  influence  is  doing 
much  to  assure  the  steady,  consistent 
progress  of  the  industry. 

One  of  the  most  outstanding  effects 
of  the  "Save  tje  Surface  Campaign" 
has  been  its  constantly  increasing 
tendency  to  put  the  whole  of  the 
paint  and  vainlsh  industry  on  a  high- 
er level  with  each  factor  contributing 
its  part  to  a  common  objective,  with 
a  common  methnd  and  a  common 
standard  of  service  and  performance. 


CO-OPERATIVE   COMPETITION 


49 


April  5,  1922 


WOULD  CURB  ALL  TRADE  AND 
INDUSTRIAL  COMPETITION 

Advocates  Fixing  of  Fair  Prices — Suggests  Changes  in  Laws  So  as  to 
Permit  Closer  Co-operation  in  Trade  Associations 


By  CHARLES  R.  STEVENSON 

Of  the  Stevenson  Corporation,  Industrial  Engineers 


History    records    that    nations    and  |  ently   the  excess  stocks  of  goods   are 
peoples   worship   the   idols   which  de-    consumed,   many   concerns   have  been 


stroy  them;  The  American  people  wor- 
ship manyl  idols.  Chief  of  these  idols 
Is  the  great  god  competition — de- 
stroyer of  capital,  oppressor  of  work- 
ers. This  great  idol  exacts  its  toll 
from  the  rich  and  the  poor,  the  migh- 
ty and  the  humble. 

Just  as  hx  the  days  of  old  prophets 
arose  who  denounced  the  idols  and 
the  acts  committed  in  their  name,  so 
to-day  we  have  among  us  men  of  far- 
seeing  vision  who  denounce  our  idols 
and  the  suffering  they  cause,  and  more 
or  less  intelligently  seek  meanp  of 
rescuing  us  all  from  the  devastating 
results  of  our  worship.  So  strongly 
intrenched,  however,  is  the  great  god 
competition  that  few  of  us  nave  found 
the  courage  to  denounce  it  publicly 
and  directly,  yet  most  of  the  evils 
which  American  business  men  and 
American  working  men  suffer  from 
come  from  and  because  of  competition, 

Liet  us  consider  carefully  ju.st  what 
competition  is  doing  to  us.  It  is  be- 
cau.se  of  competition  that  we  have  our 
regular  periods  of  Inflation  and  de- 
pression. In  periods  of  inflation  com- 
petition leads  to  rising  prices,  which 
soon  become  exorbitant  and  beyonii 
the  power  of  the  public  to  pay.  New 
capital  18  attracted  to  industries  which 
are  yielding  extraordinary  returns  and 
unnecessary  and  unwarranted  in- 
creases in  productive  capacity  result. 

Presenly  prices  becomes  so  high  that 
bnyjng  stops  and  the  pendulum  be- 
gins to  swing  the  other  way.  Plant 
after  plant  is  forced  to  reduce  its 
working  force  and  presently  to  clo.se 
down.  Millions  of  men  are  thrown 
out  of  employment,  with  all  the  at- 
tending hardship  and  suffering. 

In  the  frantic  struggle  for  business, 
•  which  does  not  exist,  prices  are  forced 
down  below  the  cost  of  production. 
Capita!  is  destroyed.  Wages  are 
pushed  down  and  down  until  they 
reach  a  bare  sustenance  level.     Pres- 


forced  out  of  business — then  the  pen- 
dulum begins  to  swing  back  to  exor- 
bitant prices  and  inflation. 

"Competition"  Taking  Toll 

We  are  all  familiar  with  the  proc- 
ess. It  hurts  us  all — owners  of  capi- 
tal, managers,  merchants,  workers, 
and  farmers.  It  really  hurts  the 
worker  and  the  farmer  most  of  all. 
The  great  god  Competition  is  taking 
his  toll,  exacting  his  sacrifices,  and 
we,  his  victims,  chant  his  praises  and 
glorify  him. 

Sensible  men  realizing  a  condition 
seek  to  remedy  it. 

The  men  who  manage  and  are  re- 
sponsible for  American  business  real- 
ize the  conditions  and  are  seeking  a 
remedy.  The  search  has  led  in  many 
directions  and  has  involved  many 
fal.se  steps,  the  chief  of  these  being 
the  trust  and  the  pool.  The  trust 
sought  to  combine  under  one  owner- 
ship and  management  all  of  the  pro- 
ducing facilities  in  a  given  line  of 
effort.  The  pool  sought  to  preserve 
separate  ownership,  but  to  pool  and 
divide  all  of  the  business  available  in 
a  fixed  ratio  and  at  fixed  prices. 

Both  of  these  efforts  were  based  on 
the  correct  principle  of  rescuing  us 
from  competition,  but  they  were  false 
steps  because  they  destroyed  Individ- 
ual Initiative  and  because  they  placed 
unrestricted  and  uncontrolled  power 
in  the  hands  of  a  few  individuals. 

Whenever  man  secures  power  he 
abuses  it. 

To  save  us  from  the  greater  evils  of 
uncontrolled  power  and  to  preserve  the 
benefits  of  individual  initiative  we 
passed  the  Sherman  and  the  Clayton 
acts.  We  were  thrown  back  at  the 
feet  of  competition   to  be   trampled. 

But  the  search  for  a  way  out  goas 
on.  It  is  taking  the  form  now  of 
organizing  and  working  through  trade 
associations.     What  the.se  associations 


are,  what  they  are  doing,  has  been 
fully  and  ably  explained  in  this  series 
of  articles.  Adhering  closely,  with  a 
few  exceptions,  to  the  limitations  en- 
forced by  our  laws,  they  are  doing  a 
great  work  to  overcome  the  eviis  of 
competition. 

The  important  question  is:  Can  we, 
through  the  development  of  our  tra'le 
Hs.sociations,  free  our.selves  from  the 
domination  of  competition  and  still 
preserve  freedom  of  individual  action 
and  justice  for  all? 

Purposes  of  Civilization 

Civilization  has,  I  believe,  two  great 
basic  purposes.  The  first  is  the  arrowth 
and  development  of  the  spiritual  and 
mental  man.  and  the  second  is  to  pro- 
vide comfort  and  well-being  for  the 
physical  man.  The  first  is  possible 
only   through   the   second. 

The  second  great  purpose  of  civili- 
zation is  in  the  hands  of  the  men  who 
manage  our  industrial  and  commer- 
cial life.  It  Is  their  duty  to  prodUM 
and  distribute  the  greatest  possibte 
amount  of  goods  to  the  greatest  pot- 
slble  number  of  people. 

The  development  of  the  physte*! 
and  material  side  of  civilization  has 
progressed  and  is  progressing  with 
great  rapiditly.  The  laborer  of  to-day 
lives  in  greater  physical  comfort  ana 
is  posuessed  of  the  use  and  enjoy- 
ment of  more  material  attributes  te 
physical  comfort  than  the  rulers  aaa 
the  very  wealthy  possessed  one  hun- 
dred, if  not  fifty,  years  ago. 

Sanitary  plumbing,  well-made  cloth- 
ing,  victrolas,  magazines,  books,  auto- 
mobiles, and  many  other  pleasant 
things  are  nojv  in  the  homes  of  the 
great  mass  of  our  people.  Working 
hours  have  decreased  from  twelve  to 
eight.  And  still  we  have  only 
scratched  the  surface  of  material  de- 
velopment. 

The  spiritual  and  mental  growth  of 
our  people  is  progressing  with  the  ma- 


50 


CO-OPERATIVE    COMPETITION 


terial  dtvelopment.  The  proper  guid- 
ance, anil  control,  and  operation  o(  the 
vast  proluctive  and  distributive  ma- 
chinery i;  in  the  hands  of  the  men  who 
manage  o  ir  businesses.  Great,  indeed, 
then  is  tljeir  responsibility. 

This  responsibility  must  be  met 
through  the  functioning  of  the  busi- 
nesses which  they  control.  To  meet 
their  responsibilities  through  their 
businesses  these  businesses  must  per- 
form three  functions.  They  must  pro- 
vide adequate  wages  for  the  men  and 
women  whom  they  employ;  they  must 
provide  an  adequate  but  not  excessive 
return  for  the  capital  they  employ,  and 
they  must  provide  goods  for  the  con- 
suming public  at  the  lowest  prices  pos- 
sible consistent  with  the  first  two  re- 
quirements. 

It  is  only  lately  that  the  broader  con- 
ceptions of  the  duties  of  a  business 
and  the  saen  who  manage  it  have  be- 
gun to  be  realized.  Under  the  stress 
of  competition  business  managers  have 
sought  to  secure  the  largest  possible 
return  for  themselves  and  the  capital 
they  represent,  and  have  given  little 
thought  to  their  re.sponsibililies  to 
labor  and  the  consuming  public.  Com- 
petition has  forced  this  attitude  upon 
them,  and  the  worker  and  the  public 
have  suffered. 

Largely  through  the  broad  educa- 
tional work  of  the  trade  associations 
business  managers  are  coming  to  see 
their  broad  threefold  responsibility. 
They  are  anxious  to  meet  it.  They  are 
willing  to  limit  their  own  returns.  If 
these  returns  can  be  assured,  in  order 
that  the  other  two  responsibilities  can 
be  met.  They  cannot  meet  them  un- 
der the  competitive  system.  The  com- 
petitive  system  involves  a  struggTe  for 
mere  existence,  and  broader  duties 
and  responsibilities  are  lost  sight  of. 

Trade  associations  have  proved  to 
the  American  business  manager  that 
they  can  work  together.  Men  are  com- 
ing to  see  that  in  destroying  a  com- 
petitor they  are  destroying  them- 
Belves  and  are  Injuring  the  people 
who  work  for  and  consume  the  prod- 
ucts of  the  industry.  Through  the 
trade  associations  actual  facts  as  re- 
gards  costs  and  trade  conditions  ars 
taking  the  place  of  guess  work. 
Their  Important  V(^ork 


work  whiclf  our  tradre  associations 
have  done  and  are  doing  is  the  de- 
velopment of  actual  knowledge  of 
costs  of  production  and  selling  in  vari- 
ous Industries.  I  believe  that  selling 
prices  should  bear  a  definite  relation 
to  cost.  I  think  it  i.«  just  as  unjust 
for  a  price  to  be  too  low  as  it  is  for 
it  to  be  too  high.  The  price  which  is 
too  low  destroys  capital  and  makes  it 
impossible  to  pay  labor  a  proper  wage. 
The  price  which  is  too  high  makes  it 
impossible  for  the  consuming  public 
to  buy  and  enjoy  the  goods  to  which 
they  are  entitled. 

We  should  all  work  together  for  the 
common  good.  TTiis  sounds  socialistic 
— at  least,  it  is  the  creed  of  the  So- 
cialist— but  his  method  of  attaining 
tile  desired  result  is  repugnant  to  most 
of  us,  for  he  would  kill  and  destroy 
individualism,  and  we  are  all  highly 
individualistic.  I  believe,  however,  that 
all  the  Socialist  desires  can  be  ob- 
tained through  the  development  of  our 
trade  associations  If  the  basic  facta 
about  the  evils  of  competition  and  the 
duties  and  responsibilities  of  business 
are  once  cleany  understood  and  agreed 
to  by  capitalists,  managers,  workers, 
and  consumers;  all  of  us  fall  in  at 
least  two.  and  many  of  us  in  all,  of 
these  classes. 

Through  the  cost  work  of  our  as- 
sociations it  is  easily  possible  to  de- 
termine at  any  one  time  tne  average 
cost  of  the  various  articles  produced 
in  that  particular  Industry.  In  this 
average  cost  will  be  some  low  costs 
secured  by  very  efficient  factories  and 
some  high  costs  secured  by  some  in- 
efficient factories,  but  if  all  the  fig- 
ures are  properly  prepared  and  are 
on  a  uniform  method  basis  it  will  rep- 
resent a  true  average. 

I  believe  that  the  selling  price 
should  bear  a  definite  relation  to  the 
cost  so  established,  so  that  the  aver- 
age return  to  the  capital  invested 
in  the  industry  will  be  a  fair  one. 
Under  present  conditions  I  think  this 
return  should  be  about  15  per  cent 
tor  staple'  business  and  larger  on 
specialties  and  business  of  a  more 
speculative  nature. 

For  Full  Publicity 

1   believe    that   all    of   the   facts    in 


I  believe   that   the  most   important  regard   to    the   costs,   the   capital   In- 


vested, and  everything  else  connected 
with  the  industry  as  a  whole  should 
be  given  complete  publicity,  so  that 
workers  and  the  public  may  know  ex- 
actly how  prices  are  based  and  what 
profits  are  being  made.  All  figures 
should  be  subject  to  audit  and  In- 
vestigation by  a  properly  constituted 
Government  authority. 

Under  this  plan  the  super-efficient 
plant  would  make  a  super-profit  and 
the  inefficient  plant  would  make  a 
sub-profit  or  a  loss.  The  effort  to  se- 
cure a  super-profit  would  preserve  all 
of  the  advantages  of  individual  initia- 
tive and  would  gradually  lower  the 
price  so  that  more  could  be  consumed. 
The  inefficient  plant  would  gradually 
be  forced  out  of  business. 

This  plan  is  made  possible  only  be- 
cause of  the  work  which  our  trade 
associations  have  done.  Its  success  de- 
pends upon  scientific  knowledge  of  the 
industry  costs  as  a  whole,  which  has 
only  recently  become  available.  It 
avoids  all  of  the  errors  and  injustices 
of  the  trust  and  the  pool  and  yet  It 
would  free  us  from  the  evils  of  com- 
petition and  would  place  the  busi- 
nesses to  whicii  it  was  applied  on  a 
sound,  stabilized  basis. 

Whether  this  can  be  done  under 
the  present  laws  is  a  question.  Prob- 
ably not.  What  we  need  then  is  at 
first  a  permissive  law  giving  the  trade 
associations  the  right  to  agree  on  and 
fix  prices  in  proper  relation  to  cost 
and  return  on  capital,  subject  to  com- 
plete publicity,  and  also  subject  to 
audit  and  check  by  a  properly  constl- 
tuted  Government  agency.  Probably 
only  a  few  associations  would  avail 
themselves  of  such  a  law  to  begin  with, 
for  many  of  our  business  men  still 
worship  the  idol,  competition,  and 
many  still  believe  that  they  should 
secure  what  many  of  us  are  coming 
to  believe  are  excessive  profits.  But 
there  are  enough  far-seeing  men  now 
bound  together  in  our  as.soeiation  work 
to  give  the  plan  a  thorough  trial,  and 
that  is  what  all  new  plans  must  have. 

Our  trade  associations  through  this 
plan  then  can  be  developed  with  the 
sympathy  and  cooperation  of  the  pub- 
lic to  free  us  from  the  evils  and  wastes 
of  competition,  and  to  build  our  busi- 
ness fabric  on  freedom  of  individual 
effort,  service,  and  Justice  for  all. 


COOPERATIVE   COMPETITION 


Bl 


'April  6,  1922 

TRADECOMMISSIONWORKSWITH 
TRADE  ASSOCIATIONS 


Asserts  Its  Rulings  Make  Busiaiess  Laws — Seeks  Co-operation  in  Es- 
tablishing Standards  of  Practice — Inquiry  Showed  That  141 
Out  of  1,^73  Trade  Groups  Exchange  Price  Information 


By  HAROLD  PHELPS  STOKES 


Washington,  April  6. — Outside  of 
Congress  and  the  courts  the  principal 
Government  ag:encles  which  come  in 
contact  with  trade  associations  are 
the  Federal  Trade  Commission,  the 
Department  of  Commerce,  and  the 
Department  of  Justice.  The  Depart- 
ment of  Agriculture  also  has  special 
functions  to  perform  under  the  recent 
cooperative  marketing  act. 

In  proposing  the  creation  of  a  Fed- 
eral Trade  Commission,  it  was  Presi- 
dent Wilson's  original  intention  that 
the  commission  should  help  business 
in  an  afarmatlve  way.  "The  business 
men  of  the  country  desire  something 
more  than  that  the  menace  of  legal 
processes  in  these  matters  be  made 
explicit  and  intelligible,"  he  said  in. 
addressing  Congress  on  January  20, 
1914  "They  desire  the  advice,  the  defi- 
nite'  guidance  and  information  which 
can  be  supplied  by  an  administrative 
body  and  interstate  trade  commission. 
■  In  this  respect  the  Federal  Trade 
Commission  has  never  fully  realized 
the  functions  which  President  Wilson 
hoped  for  it.  The  commission  has  come 
In  for  a  good  deal  of  criticism  on  this 
score,  but  the  law  itself  must  shoulder 
a  large  share  of  the  blame.  In  the 
form  in  which  it  was  finally  adopted, 
the  act  creating  the  Federal  Trade 
Commission  did  not  g:ive  that  body  the 
authority  to  give  advice.  It  was  ar- 
gued, among  other  considerations,  that 
If  the  commission  were  given  power  in 
advance  to  pass  upon  proposed  co- 
operative contracts  and  practices  it 
would  be  swamped  with  that  work 
alone. 

Under  the  Federal  Trade  Commission 
Act  the  commission  is  composed  of 
five  commissioners  appointed  by  the 
President  with  tire  advice  and  consent 
of  the  Senate,  not  more  than  three  of 
whom  shall  be  members  of  the  same 
political  party.  Under  Section  V  of 
Uie  -act,   unfair   methods   of  competi- 


tion in  commerce  are  declared  unlaw- 
ful, and  the  commission  i.s  "empow- 
ered and  directed  to  prevent  persons, 
partnerships  or  corporations,  except 
banks  and  common  carriers,  subject  to 
the  acts  to  regulate  commerce,  from 
using  unfair  methods  of  competition 
in  commerce." 

Power  to  Investigate 

Section  VI  gives  the  commission 
power  "to-  gather  and  compile  infor- 
mation concerning,  and  to  investigate 
from  time  to  time  the  organization, 
business,  conduct,  practices.  and 
management  of  any  corporation  en- 
gaged in  commerce,  excepting  banks 
and  common  carriers,  subject  to  the 
Act  to  Regulate  Commerce  and  its 
relation  to  other  corporations  and  to 
individuals,  associations,  and  liartner- 
ships."  The  commission  was  also  em- 
powered under  this  section  to  compel 
the  corporations  concerned  to  file  an- 
nual and  special  reports  under  oath 
or  otherwise.  ■ ... 

The  commission  was  further  em- 
powered to  investigate  the  manner  ia 
which  court  decrees  under  the  anti- 
trust acts  were  being  carried  out; 
upon  the  direction  of  the  President  or 
either  house  of  Congress,  "to  investi- 
gate and  report  the  facts  relating  to 
any  alleged  violations  of  the  anti-trust 
acts  by  any  corporation";  upon  the 
application  of  the  Attorney  General, 
"to  investigate  and  make  recommen- 
dations for  the  readjustment  of  the 
business  of  any  corporation  alleged  to 
be  violating  the  anti-trust  acts";  to 
make  public  such  portions  of  the  in- 
formation it  obtained,  except  trade 
secrets  and  names  of  olistomers,  "as  it 
shall  deem  expedient  in  the  public  in- 
terest," and  to  exercise  other  similar 
functions. 

Under  the  Clayton  act  the  commis- 
sion was  charged  with  the  authority 
to  enforce  compliance  with  the  provi- 
sions relating  to  price  discriminations. 


rebates,  interlocking  directorates,  etc. 
The  commission  in  exercising  its  own 
proper  functions  under  the  Trade 
Commission  Act  has  no  punitive 
powers.  It  cannot  fine  or  imprison. 
It  may  merely  issue  a  command  to 
an  otfenfler  to  "cease  arid  desist," 
which  command  or  order  may  be  re- 
viewed by  a  court. 

The  Federal  Trade  Commission  has 
come  into  contact  with  trade  asso- 
ciations in  two  ways:  First,  in  carry- 
ing out  its  obligations  under  Section 
V  to  prevent  unfair  methods  of  com- 
petition; and,  second,  in  the  course 
of  its  general  investigations,  particu- 
larly with  regard  to  the  enforcement 
of  the  anti-trust  acts.  Practices  in 
the  nature  of  boycotts  and  blacklista, 
instituted  by  trade  associations,  briac 
them  under  the  scrutiny  of  the  COIB- 
misslon. 

Where  trade  associations  Imt* 
brought  about  price  control,  directly 
or  indirectly,  they  also  come  under 
the  ban,  and  tendencies  In  that  di- 
rection have  received  the  attention 
of  the  commission.  The  commission 
has  found,  for  instance,  that  cost  ac- 
counting, though  entirely  legitimate 
in  principle,  has  often  been  used  aa 
a  cloak  for  agreement  on  prices. 

Frequently  the  Trade  Commission 
has  been  able  to  work  with  the  asso- 
ciations in  a  constructive  way.  A 
notable  instance  of  thftj  lias  been  the 
commission's  activity  In  curbing  the 
practice  of  commercial  bribery.  Then 
there  is  a  proceeding  which  the  com- 
mission calls  a  "trade  practice  sub- 
mittal," under  which  the  commission 
and  the  association  work  together  to 
establish  standards  or  practice.  For 
instance,  a  member  of  the  commission 
,  presided  at  a  conference  of  oil  reSners 
and  jobbers  in  Chicago,  which  resulted 
in  condemning  certain  practices,  such 
as    advertising   so   as    to    Imply    that 


52 


CO-OPEEATIVE   COMPETITION 


\ 


competitors     are     not     selling     good 
products. 

Took  Question  of  Costs 
Prom  time  to  time  the  commission 
has  Kone  extensively  into  the  question 
of  costs.  This  side  of  its  worlt  ex- 
panded greatly  during:  the  war  in 
order  to  help  the  War  Industries 
Board,  Food  Director  Hoover,  Fuel 
Director  Garfield,  the  Army,  the  Navy, 
etc.  Outside  of  its  war  activities  the 
Copimisslon  has  on  occasion  investi- 
gated costs  and  prices,  such  as  those 
In  the  coal  industry  and  the  gasolene 
Industry,  usually,  at  the  request  of 
Congi-ess  or  the  President,  sometimes 
In  connection  with  Its  own  special  In- 
quiries. 

For  a  time  after  the  war  these 
cost  inquiries  lapsed,  but,  when  the 
public  becathe  actively  interested  in 
the  high  cost  of  living,  the  Commis- 
sion determined  to  publish  figures  on 
the  basic  Industries.  It  started  in 
with  coal  and  steel,  with  the  inten- 
tion of  ultimately  publishing  figures 
with  regard  to  fifteen  or  twenty 
aimllar  Industries. 

The  plan  was  to  furnish  the  sta- 
tistics to  the  Industry  Itself  and  also 
to  keep  the  public  informed  so  that 
it  could  determine  whether  profits 
were  inordinate  or  not.  In  the 
i|>ring  of  1920,  however,  the  Com- 
mission wa*  enjoined  *)y  the  Su- 
yteme  Court  of  the  District  of  Col- 
umbia from  requiring  periodic  re- 
ports from  the  companies  in  the  coal 
and  steel  Industries  regarding  pro- 
duction cost,  prices,  etc.  This  work 
was  acordlngly  dropped  pending  de- 
«l81on  by  the  Supreme  Court  as  to 
tb»  Commission's  authority. 


the  law  the  power  to  make  authorita- 
tive rulings  upon  such  matters  as  are 
proposed  by  your  letter,"  wrote  Chair- 
man Gaskill.  "The  commission  is  de- 
sirous of  cooperating  with  business, 
however,  and  in  proper  cases  where 
it  can,  by  the  expression  of  what  is 
merely  an  opinion,  stated  in  general 
principles,  contribute  to  the  elimina- 
tion of  legal  uncertainties,  doe&  not 
hesitate  to  do  so.  The  application  of 
these  principles,  however,  to  particu- 
lar cases  as  they  arise  must  depend 
upon  the  facts  adduced  in  the  particu. 
lar  case." 

Last  October  the  commission  made 
a  special  Inquiry  into  the  activities  of 
trade  associations.  The  commissioi^ 
sent  out  2,760  questionnaires  to  trade 
associations  In  response  to  a  request 
for  Information  from  the  chairman 
of  the  joint  commission  of  agricur- 
tural  Inquiry  of  the  tnlted  States  Con- 
gress. Replies  were  received  from 
1,673  showing  the  following  activities: 
Associations  collecting  and  ex- 
changing prloe  Information.....  141 
Associations  compiling  and  dis- 
tributing other  statistics 376 

Non-statistical  associations 76S 

Inactive   or   disbanded 161 

Incomplete    replies    , 227 

According  to  the  Information  sup- 
jlled  by  the  associations  there  were 
141  out  of  a  total  of  1,673  sending  in 
replies  to  the  questionnaire,  which  dis- 
tributed or  exchanged  information  re- 
garding prices  in  closed  transactions. 
Nine  associations  indicated  that  they 
had  recently  discontinued  the  collec- 
tion and  exchange  of  information  re- 
garding their  selling  prices  pending 
the  decision  of  the  United  States  Su- 
I  that  Congress  purposely  struck  out  o'  1  preme  Court  in  the  Haidwood  cafe. 


As  already  indicated,  much  of  the 
criticism  of  the  Commission  has 
come  from  business  men  who  think 
that  it  has  been  too  much  of  a 
policing  body  and  too  llMle  of  an  or- 
ganization designed  to  help  business 
steer  a  straight  coure  through  the 
entanglements  of  the  anti-trust  acts. 
Over  and  above  the  defence  against 
this  charge  that  the  law  does  not  give 
tUem  as  wide  powers  in  this  direction 
a£  had  been  anticipated  the  commis- 
sion takes  the  ground  that  a  body  of 
information  for  the  guidance  of  busi- 
ness generally  is  gradually  being  built 
up  by  successive  decisions  in  Individ- 
ual cases. 

"The  publication  of  Its  decisions  in 
collected  volumes  Is  expected  to  go 
far  tow,ard  removing  misunderstand- 
ings and  bringing  to  the  attention  of 
business  inen  the  fact  that  the  com- 
mission is  rapidly  building  up  a  body 
of  business  law  which  will  afford  them 
that  'advice,  definite  guidance,  and  in- 
formation' which  the  President  sug- 
gested that  such  a  commission,  could 
and  would  supply,"  says  the  corn- 
mission  in  its  anual  report  for  1921. 

Helps  Associations 

Moreover,  Th  certain  Instances  the 
commission  has  not  hesitated  to  do 
what  it  can  by  way  of  constructive 
help.  Several  good  examples  of  this 
are  available.  For  Instance,  on  July 
18  laal  year  the  commission  wrote 
a  let,4fr  to  F.  J.  Moss  of  the  American 
Sagfc  and  Door  Company  in  Kansas 
(•y,  giving  its  views  In  respect  to  the 
f  ducational  work  of  trade  assocl.itlons 
In  connection  with  cost  acounting. 

"You    doubtless    recognize    the    fact 


] 


CO-OPERATIVE    CUM  PETIT  ION 


53 


April  6,  1922 


INDUSTRIAL  GROUPS  URGED  TO 

ORGANIZE 


Says  Trade  Associations  Must  Be  Enlarged  —  Suggests  They  Include 
All  Related  Lines  and  Labor  in  Any  Given  Business 


"Business  at  the  present  time  starts 
Its  operations  at  the   wrong  end." 

"The  Tvrong  end'.'" 

"Yes,  business  men;  the  brick 
manufacturers  up  the  Hudson  Hiver, 
for  Instance,  make  so  many  bricks  of 
<>o  many  different  kinds  during  t'.ie 
year  and  then  try  to  sell  them.  They 
begin  at  th»  wrong  end.  They  should 
first  have  found  out  what  kind  of 
bricks  were  wanted  and  how  many 
and   then   filled   the   demand. 

"How  would  they  get  this  informa- 
tion aa  to  the  demand?" 

"Through  a  properly  organized  trade 
association  made  up  of  ali  tae  trades 
having  to  do  with  the  building  indus- 
try— iftrchltects,  engineers,  contract- 
ors, sub-contractors,  labor  unions,  real 
estate  dealers,  and  financiers,  all  of 
them  should  be  in  this  industry  asso- 
ciation. In  such  an  organization  each 
group  or  individual  would  realize  his 
functional  relation  to  the  rest  of  the 
Industry,  learn  its  needs,  and  so  be 
able  to  act  intelligently  in  his  busi- 
ness, and  tlius  the  whole  industry 
would  benefit." 

In  this  way  Robert  D.  Kohn,  archi- 
tect, chairman  of  the  executive  com- 
mittee of  the  National  Congress  of 
the  Building  and  Construction  In- 
dustry, expressed  what  he  said  should 
be  the  fundamental  philosophy  of  all 
trade  associations. 

"Functional  consciousness,"  he  said, 
"where  each  man  realizes  his  de- 
pendence upon  the  others  in  the  in- 
dustry, should  be  the  fundamental 
philosophy  of  all  associations,  and  the 
idea,  in  my  opinion,  should  be  ex- 
tended to  the  State,  where  the  different 
industries  and  professions  should  real- 
ize their  functional  positions  in  the 
body  politic  and  their  Interdependence. 

"We  have  now,"  Mr.  Kohn  <:on- 
tinued,  "innumerable  trade  associa- 
tions which  are  made  up  of  trades,  or 
even  parts  of  trades.  There  are  the 
lilemakers'  associations  and  the  clay 
products  associations,  the  plumbers' 
association,    and    the    pipe    manufac- 


By  R.  D.  KOHN,  Architect 

turers'  organization,  the  cotton  fin- 
Lshers'  association,  and  numberless 
other  groups,  each  working:  in  part 
for  its  selfish  interests  and  not  even 
realizing  its  relations  with  the  rest 
of  its  own  industry,  much  less  the  rest 
of  all  industry.  What  we  should  have 
are  industry  associations  where  all 
those  taking  part  in  a  great  industry, 
such  as  building  or  manufacturing 
cotton  goods,  act  together,  realizing 
their  functional  part  in  the  whole 
process." 

"Has  there  ever  been  auch  an  or- 
ganiaatlon  started?"  Mr.  Kohn  was 
asked.  

"Yes,  during  the  war  in  certain 
Government  departments  where  in 
some  cases  action  was  taken  in  (Ws 
way,  some  business  was  started  at 
the  right  end,  and  now  there  is  the 
Building  Congress,  which  is  an  asso- 
ciation of  all  connected  In  the  build- 
ing industry,  among  other  things  try- 
inir  to  develop  that  angle  for  the  in- 
dustry." 

'■Just  how  do  you  mean  that  dur- 
ing the  war  business  was  started  at 
the  right  end  on  occasion?" 

"I  will  give  you  a  personal  expe- 
rience," replied  Mr.  Kohn.  "When  I 
was  chief  of  production  for  housing 
for  tl^e  Shipping  Board  I  found  after 
many  sad  failures  that  the  only  way 
to  get  results  was  through  bringing 
together  in  advance  all  th>se  people 
who  would  have  a  part  in  the  design 
or  construction  of  the  housea.  for 
example,  if  the  board  should  say  that 
250  men  were  to  be  sent  to  build 
ships  in  Portsmouth,  and  that  accom- 
modations were  needed  there  within  a 
certain  period,  we  did  not  start  by 
making  plans  and!  specifications  of 
the  buildings  and  then  calling  on  con- 
tractors for  the  different  tra''.°s  and 
telling  them  that  they  had  ro  do  such 
and  sit(  h  things. 

Made   Comprehensive    Plans 
"We  would  call  architect    engineer, 
chief    of    construction,    transportation 
chief,   and  all   the   rest   together  first 


and  tell  them  the  problem.  Then  the 
lumber  man,  perhaps,  would  say:  'I 
can  get  a  million  feet  of  lumber  from 
the  South  in  three  weeks,'  and  the 
brick  man  might  say  that  he  could 
lay  his  hands  on  so  many  thousand 
bricks  from  New  Hampshire.  Then 
perhaps  the  transportation  man  would 
say  that  troops  were  being  moved  from 
the  Chicago  district  to  Newport  News 
and  that  all  shipments  from  points 
south  of  that  line  would  bo  held  up, 
but  from  Pennsylvania  he  could  get 
suitable  materials  of  another  kind,  and 
so  it  would  go  and  we  would  work  the 
problem  out,  actually  designing  the 
buildings  in  such  a  way  as  to  use  the 
most  easily  available  material." 

"In  other  words,  you  found  out 
first  what  your  demand  and  supply 
were  and  then  made  your  plans?"  Mr. 
Kohn  was  asked. 

"Yes,  we  reversed  the  usual  order 
of  doing  business,  but,  more  Important, 
we  got  all  the  branches  of  the  work 
functioning  together,  appreciating  the 
other  man's  problems,  obtaining  accu- 
rate information  as  to  demand,  sup- 
ply, costs,  and  so  on.  This  i?  what 
the  trade  associations  should  do." 

"You  said  that  the  Building  Con- 
gress was  doing  the  same  thing.  You 
mean  that  in  this  body  all  the  people 
connected  with  the  building  industry 
meet  and  discuss  what  the  demand 
for  building  is  likely  to  be,  how  it  can 
best  be  filled,  what  the  requirements 
in  supplies  win  be,  and  so  on?" 

"Yes,  and  no;  that  is  only  one  of  the 
problems  they  discuss.  When  each 
element  in  the  industry  understands 
the  part  it  plays  in  the  whole,  we  can 
go  a  great  deal  further.  1  will  give 
you  an  example  of  what  it  might  do. 
At  the  present  time  you  see  the  Build. 
ing  Trades  Employers'  Association 
suggesting  that  there  should  oe  a  re- 
duction in  wages  in  certain  trades  and 
the  BuMding  Trades  Council  replying 
with  the  threat  of  a  strike. 

"To  say  that  such  things  should  be 
settled    by    arbitration    is    merely    a 


64 


COOPERATIVE    COMPETITION 


makeshift — the  relative  dependence  of 
an  industry  on  any  one  element  in  it 
has  never  been  worked  out,  hence  the 
relative  share  of  the  proceeds  which 
that  element  shall  receive  (if  it  is  to 
be  based  on  such  a  scheme)  is  purely 
a  guess  or  an  arbitrary  sum  related  to 
what  it  received  last  year  or  the  year 
before.  With  a  fully  organized  as- 
sociation, which  as  yet  the  Building 
Congress  is  not,  the  matter  might  be 
eettled  differently.  In  fact  it  might 
never  come  up  in  the  form  in  which 
it  has. 

"Every  one  connected  with  the  in- 
dustry, all  of  whom  would  be  affected 
should  there  be  a  strike,  would  under- 
stand the  whole  condition  of  the  in- 
dustry. It  would  be  seen,  for  example, 
tliat  the  demand  for  houses  in  the  out- 
lying parts  of  the  city  which  were  to 
rent  at  ten  dollars  a  room  Is  great  just 
now.  This  means  work  for  the  brick- 
layers, carpenters,  plasterers,  and 
others,  but  none  for  the  steel  erectors 
or  concrete  mixers  and  handlers. 

"After  this  matter  of  demand  had 
been  brought  out  before  the  whole  in- 
dustry it  would  be  decided  advisable 
perhaps  that  the  demand  for  work 
where  the  steel  erectors  and  concrete 
men  are  employed  should  be  stimu- 
lated by  lowering  costs.  The  steel 
workers  would  find  it  advisable  for 
the  time  being  to  take  a  reduction 
In  wages,  the  cement  manufacturers 
to  make  reduced  prices,  and  so  on 
along  the  line.  This  is  but  a  crude  ex- 
Maple  and  not  based  on  actual  facts, 
but  will  serve  as  an  illustration. 

"In  this  and  other  ways  each  group 
or  trade  within  the  industry  woufd  be 
brought  to  appreciate  its  functional 
part  in  the  whole  and  would  appre- 
ciate that  intelligent  self-interest  de- 
manded a  sacrifice  in  one  place  to 
bring  a  greater  gain  elsewhere." 

"Just  how  and  when  was  the  Build- 
ing  Congress   organized,   Mr.   Kohn?" 

"It  had  its  beginning  in  1»20,  when 
there  was  a  meeting  of  a  number  of 
those  in  the  industry  at  Atlantic  City 
and  an  organizing  committee  was 
formed.  The  idea  won  favor  because 
when  the  architects  started  by  ac- 
knowledging that  they  had  failed  in 
realizing  their  responsibility  to  the 
rest  of  the  building  world,  that  they 
had  probably  been  the  cause  of  some 
of  the  ills  of  the  industry,  contractors, 
labor,  and  the  rest  followed  suit,  and 
the  idea  of  correction  aU  along  the 
line  took  hold.        _     ^     .    . 


In  One  Big  Group 

"The  purpose  of  the  organizatlo.i 
was  to  bring  together  in  cooperation 
every  element  concerned  in  the  build- 
ing industry  in  a  movement  indended 
to  promote  the  efBciency  and  improve 
the  quality  and  extent  of  the  service 
rendered,  and  develop  an  understand- 
ing of  interdependence  within  the 
building  Industry  so  that  each  part  of 
the  industry  would  work  with  every 
other  part  for  the  benefit  of  the  indus- 
try and  the  nation. 

"As  it  has  worked  out,  the  active 
organization  has  not  been  the  national 
body  but  those  local  groups  which 
have  been  developed  in  tue  different 
cities,  New  York,  Boston.  Portland, 
Seattle,  and  so  on." 

"Has  the  New  York  group  accom- 
plished anything  really  definite  as 
yet?" 

"Yes,"  replied  Mr.  Kohn.  "We  have 
suggested  a  system  of  apprenticeship 
training  for  the  improvement  of  the 
skilled  laborers.  It  has  been  notice- 
able in  the  industry  that  the  type  ot 
workers  has  fallen  off  in  recent  years. 
At  a  meeting  this  was  brought  up  and 
a  frank  discussion  took  place. 

"As  the  result,  a  committee  was  ap- 
pointed to  study  the  situation  and 
suggest  a  remedy  which  It  has  just 
done.  It  made  a  large  number  of 
recommendations,  too  many  for  me  to 
enumerate,  but  the  main  point  Is  that 
there  is  not  an  attempt  by  employers 
to  establish  their  school,  which  the 
labor  men  do  not  want,  or  the  setting 
up  of  a  'labor*  college.  It  does  not 
mean  the  superimposing  of  any  new 
organization.  Its  purpose  is  rather 
to  bring  together  the  established  em- 
ployers' associations,  labor  unions, 
and  the  existing  educational  facilities 
for  the  purpose  of  building  up  the 
apprenticeship  and  supplying  the  in- 
creased number  of  skilled  mechanics 
needed  in  the  industry." 

"Does  this  Building  Congress  mean 
the  cutting  out  of  the  trade  associa- 
tions, such  as  the  plumbers'  associa- 
tion, the  tile  makers'  association,  and 
so  on,  and  does  it  mean  that  if  a 
person  joins  this  organization  he  can- 
not belong  to  any  other?" 

May   Belong  to  Other    Bodies 

"The  answer  to  both  those  questions 
is.  No.  Membership-  In  the  Building 
Congress  can  be  as  an  Individual,  a 


firm,  or  an  association,  and  a  mem- 
ber can  belong  to  any  other  group 
with  which  he  has  dealings.  The  same 
would  be  the  case  It  similar  organiza- 
tions were  formed  in  other  indu.stries: 
for  example,  many  textile  mills  have 
both  woollen  and  cotton  departments, 
and  would  belong  to  the  industry  -as- 
isociation  of  both  the  woollen  and  cot- 
ton  industries. 

"The  chief  thing  to  remember  in 
discussing  trade  or  industry  associa- 
tions is  that  absolutely  free  competi- 
tion in  the  old  sense  of  the  word  is 
no  longer  possible  or  desirable.  It  be- 
comes ruthless  and  ruins  all  but  the 
strongest.  The  competition  must  be- 
come one  of  merit  of  product  and  a 
new  motive  for  all  of  industry  must  be 
found — but  that  Is  another  subject, 
which  would  lead  me  far  astray.  For 
the  time  being  associations  of  some 
kind  are  necessary,  and  in  my  opinion 
the  broad,  all-embracing  association 
Including  the  whole  industry  is  the 
real  solution  of  the  problem. 

"We  have  seen  Mr.  Untermyer  at- 
tacking trade  associations  through  the 
Lockwood  committee.  He  has  only 
scratched  the  surface  and  has  not  got 
down  to  fundamentals.  I  believe  that 
the  extension  of  the  idea  of  the  Build- 
ing Congress  which  was  started  well 
before  Mr.  Untermyer  began  his  work 
will  get  nearer  to  the  bottom  of  the 
matter." 

"Are  you  not  likely  to  come  Into 
conflict  with  the  laws  with  a  group  of 
this  kind?" 

"Why  should  we,  since  we  are  really 
only  an  educational  body?  We  know 
that  the  laws  as  they  now  are  are 
most  impetfect  and  possibly  we  may 
run  afoul  of  them,  but  Mr.  Hoover 
has  said  'we  are  on  the  right  track,' 
and  he  ought  to  know, 

"The  real  point  of  my  talk  Is  to 
point  out  that  trade  associations  as 
they  are  now  organized  do  not  reach 
the  full  limit  of  their  usefulness.  They 
must  be  broadened  to  include  whole 
industries  and  above  all  include  labor. 
Then  each  individual  will  eventually 
realize  his  place  in  the  whole  and  can 
act  as  a  funAional  part  of  the  whole, 
because  he  knows  where  ne  belongs 
and  not  blindly  do  himself  and  the  rest 
of  the  Industry  harm  by  his  blunder- 
ing. It  is  a  new  form  of  democrac.v 
in  industry  that  I  am  hoping  to  see 
studied  through  such  all-inclusive 
'trade  associations'  as  the  Congress  ot 
the  Building  Industry," 


CO-OPERATIVE    COMPETITION 


65 


April  7,  1922 

HOOVER  AND  COMMISSION  WORK 
ON  TRADE  GROUP  PLANS 


Many  Big  Questions  Still  to  Be  Settled-Commerce  Department  Urges 
Co-operation  With  Associations — Trade  Commission  Says  It 
Is  Authorized  to  Regulate  Trade  and  Collect 

Information 


By  HAROLD  PHELPS  STOKES 


While  business  men  generally  In- 
dorsed the  Federal  Trade  Commission 
project  when  the  proposal  to  create 
such  a  body  was  first  under  discussion 
and  entertained  great  hopes  of  what  it 
might  accomplish,  they  have  been  far 
from  satisfied  with  the  way  the  com- 
mission has  worked  out.  That  "advice, 
definite  guidance,  and  information ' 
which  President  Wilson  hoped  it 
might  furnish  was  denied  the  com- 
mission in  the  law  creating  it.  Th« 
commission  developed  into  an  almost 
purely  regulatory  and  policing  body, 
and  paid  too  little  attention  to  con- 
structive assistance  to  suit  the  busi- 
ness community. 

Business  men  thought  that  what 
with  the  Sherman  act  and  the  Clayton 
act,  the  courts  and  the  Department  of 
Justice,  there  were  enough  policemen 
around  already.  In  addition  to  that 
they  took  exception  to  many  of  the 
men  appointed  to  the  Trade  Commis- 
sion, some  of  whom  they  regarded  as 
muckrakers,  others  as  politicians  and 
mediocrities.  They  have  not  been 
convinced  that  the  personnel  of  the 
commission  generally  took  a  large 
view  of  its  function. 

Consequently,  when  Hoover  cojrne 
into  the  Government  and  started  In  10 
reorganize  the  Department  of  Com- 
merc  ■  and  make  it  of  wider  practical 
usef  11:1. ess  to  the  business  community, 
frade  association  secretaries  and  oth- 
ers interested  in  association  activities 
flocked  over  to  his  department  to  see 
what  satisfaction  they  could  get  there. 
In  the  meantime  Hoover  himself  had 
been  dWginc  into  tho  activities  of  trade 
associations  on  his  own  hook. 

As  early  as  last  July  he  began  Unk- 
ing up  the  bureaus  in  the  department 
with  the  different  trades  in  such  a 
way  as  to  facilitate  the  flow  of  infor- 
Biation   la   both   directions— from   the 


agents  of  the  Department  of  Com- 
merce here  and  abroad  to  the  trades, 
and  from  the  trades  in  turn  to  the 
Department  of  Commerce.  He  found 
that  the  quickest  way  to  get  informa- 
tion from  the  trades  was  through  the 
trade  associations ;  and  conversely,  that 
the  information  which  came  in  from 
abroad  could  most  effectively  be  given 
to  business  men  through  the  trade 
associations.  He  made  up  his  mind, 
therefore,  that  it  was  necessary  to 
establlah  the  closest  possible  contact 
with  those  bodies. 

What  Hoover  Is  Doing 

With  this  object  in  view,  conferences 
with  trade  association  representatives 
continued  all  summer  long  and  into 
the  fall.  A  number  of  associations  ap- 
pointed permanent  groups  to  deal  with 
the  department.  There  are  now  up- 
wards of  seventy  such  committees  who 
speak  In  all  for  no  less  than  156,000 
firms.  This  work  is  steadily  expand- 
ing. Dy  means  of  these  committees 
the  'jepartment  is  able  to  got  In  toucn 
very  rapidly  with  the  who'e  trade  In 
case  of  emergency,  and  through  them, 
as  indicated,  is  enabled  to  give  out 
to  the  trade  such  available  trade  infor- 
mation as  may  come  to  the  depart- 
ment. 

The  department  also  deals  with  in- 
dependents directly,  and  in  some  c.ises 
has  been  able  to  bring  them  and  the 
associations  together  for  their  mutual 
benefit.  The  department  has  even  un- 
dertaken to  get  trade  associations  un- 
der way  in  certain  branches  where 
they  seemed  to  be  needed,  notably  In 
the  industrial  machinery  field.  In- 
quiry developed  the  fact  that  there 
were  25,0pO  trade  associations  of  one 
sort  and  another,  of  which  number 
some  one  thousand  were  national  in 
scope. 

While    this    closer    cooperation    be- 


tween the  trade  associations  and  th« 
Department  of  Commerce  was  beingr 
effected,  the  Supreme  Court  handed 
down  its  decision  in  the  American 
Column  &  Lumber  Co.  case,  in  whicli 
the  practices  of  the  American  Hard- 
wood Manufacturers  Association  were 
declared  to  violate  the  Sherman  anti- 
trust law.  This  decision  left  the 
trade  associations  generally  IH  con- 
siderable confusion  as  to  what  prac- 
tices were  legitimate  and  what  prac- 
tices Tvere  not. 

In  Hn  attempt  to  clear  up  some  of 
these  uncertainties,  Secretary  Hoover 
embarked  on  a  correspondence  with 
the  Attorney  General,  the  purport  of 
which  is  now  familiar  to  all  those 
Interested  In  trade  associations.  In 
his  letter  to  the  Attorney  General, 
dated  February  3,  the  Secretary  ot 
Commerce  called  attention  to  the  or- 
ganic act  which  created  the  Depart- 
ment and  which  Imposed  upon  It  the 
duty  "to  foster,  promote,  and  develop 
the  foreign  and  domestic  commerce, 
the  mining,  manufacturing,  shipping, 
and  fisheries  Industries,  and  the  trans- 
portation facilities  of  the  United 
States." 

Asked  Daugherty's  Views 

To  determine  how  far  the  trade  asso- 
ciations could  go,  and  how  closely  he 
could  cooperate  with  them,  Mr.  Jloover 
addressed  to  the  Attorney  General 
eleven  questions  lelating  to  the  legiti- 
macy of  cost  accounting,  trade  names, 
standardization,  credit  information.  In- 
surance, advertising,  welfare.  Joint 
representation.  Government  relatisoai 
collection  of  statistics,  and  price  irrfot^ 
mation.  It  is  noteworthy  that  In  ad- 
dressing this  request  for  an  informal 
opinion  to  the  Attorney  General,  the 
Secretary  i.:  Commerce  ignored  the 
Trade  Commission  altogether. 

With  certain   warnings   and  e-"*»«»» 


66 


CO-OPERATIVE    COMPETITION 


tlona  as  to  standardized  costs  and  uni- 
form trade  marks,  the  Attorney  Gen- 
erai  replied  that  he  could  "now  see 
nothing  Illegal  In  the  exercise  of  the 
other  activities  mentioned,  provided 
always  that  whatever  is  done  is  not 
used  as  a  scheme  or  device  to  curtail 
production  and  enhance  prices  and 
does  not  have  the  effect  of  suppressing 
competition.'* 

Further,  Mr.  Daugherty  took  much 
the  same  ground  that  the  Trade  Com- 
mission has  taken  all  along  when  he 
said  that  it  was  "Imossible  to  deter- 
mine in  advance  just  what  the  effect 
of  a  plan  when  put  into  actual  opera, 
tlon  may  be,"  adding  that  this  was 
especially  true  with  reference  to  trade 
associations  whose  members  are  vital- 
ly interested  In  "stabilizing  prices." 

In  order  to  realize  more  fully  the 
department's  desire  for  close  coopera- 
tion with  the  trade  associations  Sec- 
retary Hoover  has  called  a  conference 
for  April  12th.  At  that  time  repre- 
sentatives of  the  trade  associations 
will  come  to  Washington  to  talk  over 
the  programme  with  officials  of  the 
department  and  decide  on  the  best 
way  to  collect  the  available  informa- 
tion and  disseminate  it  to  the  public 
and  the  associations  themselvesi;  The 
first  thing  will  be  to  compile  a  list  of 
the  organizations  which  will  volun- 
tarjly  furnish  to  the  Government 
•tatlgtlcal  information  Judged  permis- 
■Ible  under  the  Attorney  General's 
opinion. 

Questions  to  Be  Settled 
lATger  questions  of  the  relation  of 
Government  agencies  to  the  trade  as- 
sociations remain  to  be  settled.  At 
present  governmental  functions  in 
this  respect  are  apportioned  mainly 
as  follows:  Congress,  legislative;  the 
courts,  judicial;  the  trade  commis- 
sion, regulatory;  the  Commerce  De- 
partment, promotive,  and  the  Depart- 
ment of  Justice,  prosecutions.  Some 
want  to  give  wider  authority  to  the 
Department  of  Commerce;  some  to 
the  Federal  Trade  Commission;  some 
to  both. 

In  behalf  of  the  Department  of 
Commerce  It  is  argued  that  the  de- 
partment is  In  the  closest  touch  with 
business;  that  it  has  special  .'acilities 
for  collecting  statistics,  that  what  Is 
particularly  needed  is  affirmative  ac- 
tion rather  than  further  regulation, 
and  that   the    Trade    Commission    Is 


'April  7,  1922 

"little   more   than   an   adjunct   of   the 
Department   of   Justice." 

In  behalf  of  the  Trade  Commission 
it  is  argued  that  that  body  was  spe- 
cially constituted  to  regulate  trade 
£Cnd  to  collect  information  with  regard 
to  trade  practices;  that  whereas  the 
Department  of  Commerce  must  rely 
on  voluntary  information  the  Trade 
Commission  has  power  to  compel  In- 
formation and  to  punish  misstate- 
ments as  perjury;  that  the  Trade 
Commission's  work  gives  it  a  very 
thorough  understanding  of  the  prac- 
tices of  trade  associations;  that  the 
Department  of  Commerce  being  pri- 
marily an  agency  of  promotion  is 
likely  to  be  prejudiced  in  favor  of 
"big  business'"  and  that  the  TracU- 
Commission  is  an  impartial  body  pri- 
marily designed  to  represent  the  pub- 
lic interest,  and  is  therefore  a  better 
qualified  body  to  handle  this  problem. 

Many  specific  proposals  have  been 
made.  Samuel  Untermyer,  for  in- 
stance, wants  the  Federal  Trade  Com- 
mission act  amended  so  as  to  permit 
licensing  of  legitimate  trade  associa- 
tions. He  would  give  the  commission 
power  to  supervise  and  regulate  all 
such  associations  and  forbid  any  cor- 
poration from  becoming  a  member  of 
an  unlicensed  association.  Prof.  Sea- 
ger  of  Columbia  In  a  previous  article 
in  this  series  has  suggested  that  the 
Federal  Trade  Commission  be  reor- 
ganized and  expanded  so  that  it  can 
regulate  trade  much  as  the  Interstate 
Commerce  Coimnission  regulates  the 
railroads. 

Professor  Seager  is  particularly  in- 
terested in  adequate  publicity  with 
reference  to  prices  and  costs,  the 
further  development  of  machinery  en- 
abling the  commission  to  put  a  atop 
to  unfair  methods  of  competition,  and 
perhaps  an  enlargement  of  the  power 
of  the  coramLssion  to  permit  it  to  de- 
clare, when  the  facts  so  warrant,  that 
prices  established  by  joint  action  are 
unfair  and  unreasonable. 

Others  would  like  to  see  the  Trade 
commission  left  as  a  purely  regu- 
latory and  policing  body  and  the  De- 
partment of  Commerce  given  wide  op- 
portunity to  do  the  constructive  side 
of  the  work  in  promoting  the  legiti- 
mate activities  of  trade  associations. 

Perhaps  a  solution  lies  In  expand- 
ing both  facilities.  The  Denartment 
of  Commerce  would  then  be  relied  on 
to   collect   and  ^saemiuate  ■tatistical 


information  in  the  most  effective  man- 
ner, and  the  authority  of  the  Trade 
Commission  would  be  extended  to  per- 
mit It  to  perform  its  regulatory  func- 
tions in  a  more  constructive  way 
through  interpretation  and  advice. 

The  commission  would  then  call  on 
the  Department  of  Commerce  at  any 
time  for  all  information  available  and 
would  avoid  duplicaUon  by  collecting 
for  itself  only  such  information  as 
could  not  be  furnished  by  the  De- 
partment of  Commerce. 

Political  and  psychological  factors 
also  enter  into  this  problem.  The 
Federal  Trade  Commission  is  pretty 
well  discredited  with  the  rank  and  file 
of  business  men.  That  element  In 
Congress  which  reflects  business  In- 
terests is  reluctant  to  give  the  com- 
mission any  further  powers.  On  the 
ether  hand,  men  like  Senator  Capper, 
Senator  Norris,  and  the  others  who 
represent  agricultural  communities 
can  be  lounted  upon  to  keep  a  very 
Jealous  eye  on  the  regulatory  func- 
tions of  the  Government. 

The  progressives  and  the  farmers 
generally  have  always  urged  the  reg- 
ulation of  "big  business"  and  have 
backed  up  such  agencies  as  the  Fed- 
eral Trade  Commission.  These  ele- 
ments are  strong  in  Congress  to-day, 
and  they  will  view  with  suspicion  the 
transfer  from  the  Trade  Commission 
to  the  Department  of  Commerce  of 
any  functions  which  might  seem  to 
weaken  enforcement  of  the  law  with 
regard  to   restraint  of  trade. 

One  definite  proposal  Is  now  omM* 
Congress,  at  least  in  a  tentative  way. 
On  Monday  of  this  week  Senator  Edge 
of  New  Jersey  introduced  a  bill  giving 
wide  authority  to  the  Federal  Trade 
Commission  to  regulate  trade  associa- 
tions. Under  th'e  provisions  of  the 
Edge  bill, trade  statistic.s  would  be  filed 
with  the  commission  and  the  com;..;,a- 
sion  would  be  authorized  to  publish 
them.  Furthermore,  any  trade  asso- 
ciation might  request  from  the  com- 
mission a  specific  ruling  on  its  pro- 
posed plan  of  organization.  The  bill 
goes  into  donsiderable  detail  as  to  just 
how  the  relations  between  the  trade 
associations  and  the  commission  are  to 
be  worked  out.  It  was  introduced  by 
Senator  Kdge  so  that  the  joint  commit. 
tee  of  inquiry  which  he  proposed  at 
the  sa.ae  time  might  have  a.  deflnlt* 
plan  to  go  oa. 


Aocmwcv 


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llBRARY  USE 

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APR?    1955 


LI.)  lJl-100-/(-9.'-l7(A5702sl6)476 


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7  72  -5^  P"  6  0 


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